There are four major types of transactions that affect equity in a business: acquisitions, divestitures, mergers, and stock dividends. Each type of transaction has different implications for shareholders and the company’s overall equity. Acquisition transactions typically result in a higher share price and increased equity value for shareholders. Mergers and stock dividends can both result in a lower share price, while divestitures can lead to a decrease in equity value.Knowing which type of transaction is happening and its implications for shareholders is important for financial and strategic planning.
Transaction Effects on Accounting Equation[ytvideo]
Sales of goods and services
A business will sell goods and services to generate revenue. Revenue is generated from the sale of tangible and intangible assets. Expenses are incurred in order to produce revenue. Expenses can be classified as operating, administrative, research and development, marketing, and other operating costs. Capital expenditures are made in order to maintain or improve the facilities or inventory of a business.
Investment by owners
Debt repayment by owners
Asset sale by owners
Share issuance by owners
Payments to owners
– Purchase of equity: This is when a company purchases ownership of a share of the business from an individual or a group of individuals.
– Issuance of equity: This is when the company grants equity to someone in return for services or money.
– Dividends: This is when the company pays out money to shareholders, usually as a percentage of their investment.
– Conversion of debt: This is when the company converts debt into equity.
Stock splits and dividends
Paying back borrowed money
Issuing new equity to existing shareholders
Selling the business
Maintaining and growing the business
Acquiring new equity
Dealing with debt
There are four major types of transactions that affect equity in a business: acquisition, divestiture, merger, and spin-off. Each has its own set of consequences for the equity of the business, and each is important to understand when evaluating a potential investment.