How is owner's equity classified?

Owners' equity is divided according to economic content and can be divided into four types: invested capital, capital reserve, surplus reserve and undistributed profits.

(1) Invested Capital refers to the various properties and materials that investors actually invest in the economic activities of enterprises, including state investment, legal person investment, personal investment and foreign investment. State investment refers to the capital invested by state-owned assets in enterprises by departments or institutions with the right to invest on behalf of the state; legal person investment refers to the capital invested in enterprises by corporate legal persons or other legal entities with the assets they can control according to law; personal investment refers to the capital invested by individuals in society or within the enterprise. The capital formed by employees investing their legal property into the enterprise; foreign investment is the capital invested by foreign investors and investors from Hong Kong, Macao and Taiwan.

(2) Capital reserves are net assets increased through corporate non-operating profits, including donations received, revaluation appreciation of legal property, capital exchange rate conversion differences and capital Various property supplies obtained at a premium. Acceptance of donations refers to the capital reserve increased by the enterprise due to accepting cash or in-kind donations from other departments or individuals; statutory property revaluation and appreciation refers to the assets assessed or stipulated in contracts or agreements due to the division, merger, change and investment of the enterprise. The difference between the value and the original net book value; the capital exchange rate conversion difference refers to the exchange difference that occurs due to exchange rate changes when the enterprise receives foreign currency investment; the capital premium refers to the difference between the capital contribution paid by the investor and its subscribed capital, including The net premium income from the issuance of shares by a joint-stock company and the net premium income from the conversion of convertible bonds into equity, etc.

(3) Surplus reserve refers to the reserve fund withdrawn by the enterprise from the net profit after tax. Surplus reserves can be used to make up for corporate losses in accordance with regulations, or can be converted into capital in accordance with legal procedures. The statutory provident fund withdrawal rate is 10%.

(4) Undistributed profits are the remaining profits after profit distribution of the net profits realized during the year, waiting for future distribution. If undistributed profits are negative, it means that the uncompensated losses at the end of the year should be made up by profits or surplus reserves in subsequent years.

Formation channels

Owner’s equity can be divided into invested capital and retained capital if classified according to the source of formation. income. The former is the initial and additional capital invested by the owner and the capital invested by other groups or individuals that is not a liability, and the latter is the retained part of profits after corporate income tax.