How to Find Additional Investment on a Summary of a Balance Sheet

The balance sheet summarizes a company's assets, liabilities and shareholders' equity. Sole proprietorships, partnerships and private companies may use the terms "owners' equity" or "partners' equity" instead of shareholders' or stockholders' equity. If the owners or partners of a private company invest additional funds or if a company issues shares on a stock exchange, the owners' capital or common equity account in stockholders' equity increases. You will need the balance sheets of two consecutive periods to find the additional investments.

Private Companies

Get the difference in the owners' capital account in the current and previous periods. Note that a partnership or sole proprietorship may allocate the net income of a period directly to the partners, in which case you should subtract the net income from the change in the capital accounts to get the additional investments during the period.

Compute the totals in the drawing accounts, which record cash withdrawals by owners. The accounting entries for a withdrawal are to credit (decrease) cash and debit (increase) the drawing account, which is a contra account that reduces the value of owners' equity. There is no impact on any of the income statement accounts or to the net profit calculation.

Subtract the total drawing capital balances from the changes in capital accounts to calculate the additional investment during the period.

Public Companies

Find the additional investment from common share issues. The accounting entries for a stock issuance are to increase the cash, "common stock-par" and "additional paid-in capital-common stock" accounts, which are balance sheet accounts. Par value is a notional amount with no financial significance. Additional paid-in capital is the difference between the issuing price and the par value. The difference in these accounts between the current and previous periods is the additional investment during the period.

Get the additional investment from preferred share issues. The methodology is the same as common shares, but the relevant accounts are "preferred stock-par" and "additional paid-in capital-preferred stock." A company may have multiple classes of common and preferred shares, in which case sum the changes in multiple accounts.

Add the additional investments from common and preferred share issues to calculate the total additional investment during the period.

Tips

  • Private or public companies may also issue debt instruments, such as commercial paper and bonds, to raise funds. The notes payable, bonds payable and other short- and long-term liability accounts will increase to reflect debt issues or repayments. Companies record stock buybacks in the treasury account, which is a contra account that reduces the value of stockholders' equity.

References

About the Author

Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.