Corporations sell shares of common stock to raise money for future growth opportunities. Each share represents partial ownership and entitles the shareholder to receive dividends when the company issues them. The company reports the value of common stock issued in the stockholder equity section of the balance sheet. The value of common stock appears in two accounts. These accounts include common stock and paid in capital on common stock. When a company wants to know the sum of common stock, it uses the asset accounts, liability accounts and select stockholder equity accounts.
1. Determine the total assets. The assets appear first on the balance sheet and include all items the company owns. Assets appear on the balance sheet in three categories which include current assets, fixed assets and other assets.
2. Determine the total liabilities. The liabilities appear second on the balance sheet and include any obligation the company owes to another entity. Liabilities come in two sections, which include current liabilities and long-term liabilities.
3. Calculate the retained earnings. Retained earnings refer to the income earned through the business that the company chooses to keep rather than pay out in dividends. The company calculates the retained earnings balance by adding the net income to the beginning balance and subtracting the dividends for the year.
4. Calculate the total preferred stock value. Add the preferred stock value and the value of paid in capital on preferred stock.
5. Calculate the common stock value. Add the total liabilities, the retained earnings and the preferred stock value. Subtract this amount from the total assets.
- To double check your math, use this alternative method of calculating the sum of common stock. If you know the value of the common stock account and the paid in capital on common stock, add these values together. You should arrive at the same answer.
- The sum of common stock on the balance sheet holds no connection to the market value of the common stock. The value of the common stock reported on the balance sheet comes from the money received when the company sold the stock. The market value of the stock depends on the current price of stock as it is sold on the stock exchange.