69. Contributed Capital. Акционерный капитал.

Stockholders’ equity indicates the amount of financing provided by owners of the business and earnings. The investment of cash and other assets in the business by the owners is called contributed capital. The amount of earnings (profits) reinvested in the business (and thus not distributed to stockholders in the form of dividends) is called retained earnings. Contributed capital, which refers to stockholders’ investments in a corporation, is a major means of financing a corporation. Legal capital (number of shares issued times the par value) is the minimum amount that a corporation can report as contributed capital.

Contributed capital consists of money raised through stock issues. A corporation can issue two types of stock: common stock and preferred stock. Common stockholders have voting rights; they also share in the earnings of the corporation. Preferred stockholders usually have preference over common stockholders in one or more areas.

In practice this account often is shown as two accounts: Common Stock and Additional Paid-In Capital. Each share of common stock usually has a nominal (low) par value printed on the face of the certificate. Par value is a legal amount per share established by the board of directors. Its significance is that it establishes the minimum amount that a stockholder must contribute.

The term contributed capital only refers to shares that investors have bought directly from the company, either from an initial public offering or a secondary issuance of stock; there is no accounting entry for shares that are exchanged between investors on the open market, since these transactions do not directly impact the company.

In keeping with the convention of full disclosure, the stockholders’ equity section of a corporate balance sheet gives a great deal of information about the corporation’s stock. Under contributed capital, it lists the kinds of stock; their par value; and the number of shares authorized, issued, and outstanding. As noted earlier, par value is the amount per share that is recorded in a corporation’s capital stock accounts, and it constitutes a corporation’s legal capital. A corporation cannot declare a dividend that would cause stockholders’ equity to fall below the firm’s legal capital. Par value is thus a minimum cushion of capital that protects a corporation’s creditors. Any amount in excess of par value that a corporation receives from a stock issue is recorded in its Additional Paid-in Capital account and represents a portion of its contributed capital. Legal capital is the minimum amount a corporation can report as contributed capital. To protect creditors, a corporation cannot declare a dividend that would reduce capital below the amount of legal capital

NB! For partnerships contributed capital will be at its par value as no shares => no deal.

70. Cash Flow Statement. Отчет о движении денежных средств.

Statement of Cash Flows reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing. The statement of cash flows divides company’s cash inflows and outflows into the three primary categories: cash flows from operating, investing, and financing activities. Like the income statement, the cash flow statement covers a specified period of time (the accounting period), which in this case is one year. Reported revenues do not always equal cash collected from customers because some sales may be on credit. Also, expenses reported on the income statement may not be equal to the cash paid out during the period because expenses may be incurred in one period and paid for in another. Because the income statement does not provide information concerning cash flows, accountants prepare the statement of cash flows to report inflows and outflows of cash. The cash flow statement equation describes the causes of the change in cash reported on the balance sheet from the end of last period to the end of the current period:

CFs from operating activities are CFs that are directly related to earning income. CFs from investing activities include CFs related to acquisition or sale of the company’s productive assets. CFs from financing activities are directly related to the financing of the enterprise itself. They involve the receipt or payment of money to investors and creditors (except for suppliers).

Any amount left over can be used to pay back the bank debt or expand the company. Stockholders will invest in a company only if they believe that it will eventually generate more cash from operations than it uses so that cash will become available to pay dividends and expand.

The change in cash on the cash flow statement added to the beginning-of-the-year balance in cash equals the end-of-year balance in cash on the balance sheet. The cash flow statement explains how the operating, investing, and financing activities of the company affected the cash balance on the balance sheet during the year.

Here are a few ways the statement of cash flows is used.

1. The cash from operating activities is compared to the company's net income. If the cash from operating activities is consistently greater than the net income, the company's net income or earnings are said to be of a "high quality".

2. Some investors believe that "cash is king". The cash flow statement identifies the cash that is flowing in and out of the company. If a company is consistently generating more cash than it is using, the company will be able to increase its dividend, buy back some of its stock, reduce debt, or acquire another company. All of these are perceived to be good for stockholder value.

3. Some financial models are based upon cash flow.

NB! We must distinguish cash flow, cost flow and goods flow. Cost flow (IS) can exist without cash flow (CFS), while cost flow (IS) can exist without actual goods flow (FIFO vs LIFO) also.