how the expanded accounting equation works
sometimes analysts want to better understand the composition of a company s shareholders equity besides assets and liabilities which are part of the general accounting equation stockholders equity is expanded into the following elements contributed capital and dividends show the effect of transactions with the stockholders the difference between the revenue and profit generated and expenses and losses incurred reflects the effect of net income ni on stockholders equity overall then the expanded accounting equation is useful in identifying at a basic level how stockholders equity in a firm changes from period to period some terminology may vary depending on the type of entity structure members capital and owners capital are commonly used for partnerships and sole proprietorships respectively while distributions and withdrawals are substitute nomenclature for dividends revenues and expenses are often reported on the balance sheet as net income real world examples of the expanded accounting equationlet s look at an actual historical example below is a portion of exxon mobil corporation s xom balance sheet as of september 30 2018 the accounting equation whereby assets liabilities shareholders equity is calculated as follows we could also use the expanded accounting equation to see the effect of reinvested earnings 419 155 other comprehensive income 18 370 and treasury stock 225 674 we could also look to xom s income statement to identify the amount of revenues and dividends the company earned and paid out for another example consider the balance sheet for apple inc as published in the company s quarterly report on july 28 2021 2for the quarter that ended on june 26 2021 the company reported the following balances in usd millions the components of shareholder s equity are further divided on the consolidated financial statement in millions substituting for the appropriate terms of the expanded accounting equation these figures add up to the total declared assets for apple inc which are worth 329 840 million u s dollars 