What Is Equity Accounting?

Accounting equity theory is one of the important theories in accounting theory. Accountants may adopt different equity theories to handle accounting operations and prepare financial reports. Accounting theory is an important part of accounting theory, which explains the nature of the rights of accounting individuals and is used to guide related economic business accounting treatments. Different equity theories reflect people's different familiarity with accounting individuals. Equity theory not only reflects the different familiarity with the nature of equity, but also affects the concept of capital and profit, and leads to changes in the focus of accounting work.

Accounting equity theory

Right!

Accounting equity theory is one of the important theories in accounting theory. Accountants may adopt different equity theories to handle accounting operations and prepare financial reports. Accounting theory is an important part of accounting theory, which explains the nature of the rights of accounting individuals and is used to guide related economic business accounting treatments. Different equity theories reflect people's different familiarity with accounting individuals. Equity theory not only reflects the different familiarity with the nature of equity, but also affects the concept of capital and profit, and leads to changes in the focus of accounting work.

Chinese name

Accounting equity theory

Nature

One of the important theories in accounting theory

Content

Ownership theory, etc.

development trend

Changes in accounting equity theory

Accounting equity theory

So far, the accounting community has proposed six important equity theories: ownership theory, entity theory, fund theory, commander theory, enterprise theory, and residual equity theory, of which the ownership theory prevails.

Proprietary Theory

Ownership theory holds that a company consists of a specific individual or

As

1. Business owner system and owner's rights theory

Enterprises

The development of the theory of accounting equity is in sync with the changes in the organizational form of enterprises.

Regardless of the stage in which the organizational form of an enterprise changes, there is a dominant accounting equity theory corresponding to it. But various accounting equity theories are not completely opposite. The essence of various accounting equity theories is a "stakeholder equity theory." It is only in different periods that the dominant stakeholder determines the dominant accounting equity theory. No matter from the theoretical or practical point of view, the accounting equity theory is bound to develop towards the "multiple stakeholder equity theory."

Clear property rights and corporate accounting

Business Accounting

Establishing a modern enterprise system has become one of the basic points of economic system reform at this stage. It seems that both the current theoretical circles and relevant government departments understand the basic characteristics of modern enterprise systems as: clear property rights, clear rights and responsibilities, separate government and enterprise, and scientific management. Among them, placing property rights clearly in front of the four basic characteristics is enough to see its prominent position in establishing a modern enterprise system. It also further verified the phrase of Rhcos: "The division of asset rights is the basic premise of market transactions."

Property rights, also known as "property of property"; another group of more abstract claims is to reflect the ownership relationship of property in the form of law from the aspect of superstructure. People's understanding of property rights is inconsistent. Tends to the opinion of British scholar P. Abel in his "Labor-Capital Partnership: The Third Political Economy Form": "What I mean by property rights means: ownership, that is, the exclusion of others' control of possessions. Right of use , That is, the right to enjoy and use property, which is different from the right to management and income. The right to management is the right to decide how and by whom to use the property. The right to share residual income or to assume obligations comes from the The right to use or manage the revenue sharing and cost sharing that results. "

Therefore, I agree with P. Abel's point of view because this understanding of property rights is in line with the theory of "severability of property rights", and it is easier to lead to the basic view of property rights economics: "The property right system affects the economy and economic growth. The key factor."

Based on the above understanding of property rights, property rights are clear, which means the following layers of meanings: first, the ownership of the assets of an enterprise (whether it is a state-owned enterprise or a joint-stock enterprise), that is, who has the right to claim and assert the assets of the enterprise; second, It is necessary to implement the agency power and responsibility of asset management, that is, who manages and how to manage the enterprise; again, it is necessary to clarify the right to share the company's residual income (surplus), that is, who can share the company's surplus; finally, construct A new and efficient property right system.

Even in the planned economy period, it cannot be said that the property right relations of state-owned enterprises are in a state of chaos, because the Constitution and relevant regulations have clear ownership of state-owned enterprise assets. However, it should also be seen that the mere phrase "state-owned assets are owned by the state" does not mean that the relationship between the right to claim and the right to assert the assets of the company can be explained clearly, and it is not helpful to implement the state-owned enterprise as a legal person. Civil liabilities that an enterprise should bear, such as its obligations to creditors. State-owned enterprises in a market economy environment, like other companies of other nature and other organizational forms, must raise funds from various channels of the market in the name of a corporate legal person rather than the owner of the enterprise. Therefore, it is necessary to straighten out and explain the property rights of an enterprise's assets, not from the nature of the ownership of the enterprise, but from the different providers of the enterprise's assets and their rights and interests. Therefore, it is important to find a way to explain the property rights of corporate assets clearly.

So far, it is clear that accounting for the property relationship of an enterprise's assets. The reason why accounting can clearly clarify the property right relationship of an enterprise's assets, one is to clarify the accounting subject, the other is to determine the accounting elements, and the third is to rely on accounting-specific methods of recognition, measurement and reporting.

It is generally believed that an accounting entity means a specific unit that requires an accountant to provide services. In fact, the meaning of accounting entities is not just that. Clarifying the accounting entity is, in fact, the same as defining the scope of equity of an enterprise's legal person assets. On the one hand, the accounting entity clarifies the various assets that an entity (such as an enterprise) can control or own, as well as its commitments and obligations; on the other hand, it requires that the entity's legal person's assets, financial income and expenditure, must be It is clearly distinguished from the assets and financial income and expenditures of other entities, and the assets and financial income and expenditures of the entity are clearly distinguished from the assets and financial income and expenditures of the owners of the entity. Obviously, without the concept of an accounting entity, the legal person assets of each enterprise in the market environment cannot be defined; the obligations that corporate legal persons should assume, such as repayment of principal and interest, ensuring the preservation and appreciation of capital, etc., cannot be implemented; The various claims and claims-rights and interests cannot be reasonably protected under the premise of clear definition; the company's own operating results and financial status cannot be properly measured.

Since accountants have a decisive role in straightening out corporate property relations, then accounting itself should have a set of theories and methods for guiding practice, related to the recognition, measurement, and reporting of rights and interests. It can be seen that in the history of double-entry bookkeeping with more than five centuries, there are indeed different lessons about the recognition and measurement of equity, especially owner's equity, and different theories have formed. This article will focus on this aspect.

Screening of accounting equity theory

Accounting equity theory

From the perspective of equity theory, the manifestations of owner's equity are various. However, what people are most concerned about the owner's equity is nothing more than the right to profit distribution and asset disposal, the right of an enterprise to its remaining assets during liquidation, and the right to sell or transfer property rights. From the perspective of business accounting, one of its purposes is to reflect or prompt the owner's rights and interests in a specific way so that the owner is not infringed.

This section will evaluate and compare various equity theories in order to theoretically summarize alternative models that help identify, measure, and report owners' equity. From different standpoints, the following types of equity theories can be summarized: owner theory, independent subject theory, surplus equity theory, enterprise theory, and fund theory. It should be noted that each theory attempts to explain the interests of different rights holders from their own standpoints. Different equity theories emphasize different profit concepts and principles of asset valuation.

When it comes to the nature of equity, we naturally think of the meaning of the term equity. The word "interest" traces its roots literally with two levels of connotation, one is fairness and the other is share. In other words, equity can be expressed as a fair share held by a person (legal or natural person). In theory, no matter whether it is a creditor or an owner, as a provider of corporate assets, they have a relatively fair share of the corporate assets. The difference lies only in the rights enjoyed by the respective shares held. However, in the sense of accounting, "equity" mainly refers to the right to claim and claim on corporate assets. Therefore, considering the difference in the nature of the two types of equity, accounting often extends the accounting equation of "assets = equity" to "assets = creditor's equity + owner's equity" when describing the relationship between the assets of an enterprise.

However, the enterprises in a relatively complete capital market environment, due to their funding channels and the diversification of funding, have caused the complexity of their equity recognition. The emergence of hybrid securities in the capital market, such as convertible corporate bonds and convertible preferred stocks, can easily cause difficulties in defining the two types of equity. The issuance and circulation of convertible bonds have appeared in the securities market. As for the nature of mixed securities, there are many definition methods in accounting practice at home and abroad. Generally speaking, you can judge the maturity date and repayment date of these securities, holders' participation in corporate profit distribution, and participation in business management methods. The nature of equity.

Original source in accounting equity theory

When discussing the enterprise above, it can be found that the theory of the enterprise raises a questionable point: the human rights of the enterprise. Whether an enterprise can own itself is a controversial issue in Chinese and foreign theoretical circles. So far, due to historical issues or practical reasons, some accountants are often troubled by this "concept." From the perspective of property rights theory, "a company can only own equity in its assets, but does not own one asset in its equity." In the late 1980s and early 1990s, the theoretical and practical circles once discussed a related issue in the reform of the shareholding system: whether to set up "enterprise shares" in the shares of joint-stock enterprises. Therefore, this controversy will arise, most of which is related to the formation of some joint-stock companies after the reorganization of the original state-owned enterprises into a joint-stock system. The transformation of an enterprise from a form of ownership owned by the whole people to a form of ownership under the shareholding system will inevitably involve the question of how the capital of the original state-owned enterprise is converted into shares of a joint stock company.

Those who advocate the setting up of "enterprise shares" believe that the so-called enterprise shares refer to: "assets formed by the company's self-accumulated public accumulation funds over the years, and after the existing enterprises owned by the whole people can realize profits, the assets formed by the company's retained funds and loan repayments "As a joint-stock enterprise share", "generally, the assets formed by the accumulation of the company's own funds are separated from state-owned assets and set as corporate shares, which are collectively owned by the enterprise, but not owned by any collective member." . ^[1]