What is Shareholders Equity Accounting?
Shareholders’ equity accounting records the owners’ residual claim on a company’s assets after liabilities are deducted. It includes paid-in capital, retained earnings, reserves, treasury shares, and other comprehensive income.
How It Works
- Record share issuances at par with any premium going to share premium reserve.
- Accumulate net income in retained earnings each period.
- Track distributions, treasury share buybacks, and statutory reserves separately.
Saudi Context
Saudi joint stock companies must maintain a statutory reserve equal to at least 10% of net profit each year until it reaches 30% of capital, per the Companies Law. The Capital Market Authority requires listed firms to present a full statement of changes in equity in line with IFRS.
Example
A Saudi closed joint stock company with SAR 10 million paid-in capital earns SAR 2 million profit. It transfers SAR 200,000 (10%) to statutory reserve and retains the remainder in retained earnings.