We're now gonna take a look at the equity section of our example banks balance sheets.

You can see that there are a lot of different accounts here, and we're gonna focus on the most important ones or the most commonly used ones.

We're gonna start with common stock and additional paid in capital because usually these are the first accounts created when a bank starts out.

The two lines you can see here are common stock with a value of around 9 million and additional paid in capital with a value of over 61 billion, a much larger amount.

We can also see in the label for common stock.

It tells us that since there are 927 million shares equating to $9 million of value, that each share has a par value of 1 cent.

This is all information that will make sense to you when we go through the mechanics of issuing stock.

When a company or bank issues new stock, the first thing that they will do is to sell a share to an investor.

And let's assume that the investor is going to buy a share in this case for $250.

However, each share will also have a par value, and all that means is the amount that's printed on the share certificate, it doesn't matter that much, but each share will have a par value that's on its share certificate.

So we have a problem because the company or bank will receive $250 in cash from issuing the share, but the par value that's gonna be recorded within common stock is only 1 cent.

So how do we deal with this? First and easiest, we're gonna increase cash by 1 cent and will increase common stock by 1 cent as well.

Everything balances no problem.

However, remember, we actually receive $250 in cash.

So where does the rest go? Well, it just goes into additional paid in capital.

So the surplus or the $249 and 99 cents will go into additional paid in capital, and that will be balanced by an increasing cash of the same amount.

So easy we all balance.

And this means we'll have two accounts on the balance sheet equity section, which relates to the one line of cash increase.

And what does this mean for our bank? The best way to look at these two balances is together as one, and it allows us to say that the bank raised $61.4 billion when they issued new shares over their life to date.

Another important balance in the equity section is retained earnings, and you can see here that it's the biggest number that we've got of 153 billion.

So let's take a look at the entries into and out of retained earnings.

Retained earnings is gonna capture all of the items, the revenues and expenses and income that are recorded in the income statement, and that will be collapsed down typically into one number, which will be net income.

It will also pick up the impact of paying dividends.

So let's see how this works.

Let's assume we start off with a beginning balance of retained earnings of 80 billion.

That's the starting point at the beginning of the year, which means the bank has already been operating and generated profits of 90 billion that it hasn't paid out to its shareholders yet.

We add in the reported net income for the year, in this case, 20 billion, which will be recorded in the income statement.

Now, if this bank pays dividends, this means that the cash has gone down, but it also means the profits aren't retained in the business anymore.

So retained earnings will go down as well.

Those profits have been paid out to the shareholders.

So at the end of the year, we've got an ending balance of 90 billion.

We started with 80. We added 20 billion of earnings during the year.

We paid out 10 of our earnings in the form of dividends during the year to give us an ending balance of 90.

Let's have a look at some of the other smaller balances in the equity section.

The first one is preferred stock.

Preferred stock is different to common stock in that it has a preferred claim against the assets of the business over the common stockholders.

So if the business is liquidated, the preferred stockholders get paid out before common stockholders.

It's fairly uncommon to see this incorporations, but you do see it for financial institutions as often they use it as part of their capital allocation held for regulatory capital purposes.

We've also got some share-based awards here, and this relates to equity that has been issued or to options issued to employees in the business as part of their compensation package.

We've also got some non-voting common stock, and this is pretty unusual, and you can see at the moment it's got zero value on those financial statements.

So we're not gonna say anything more about that.

The accumulated other comprehensive income is worth taking a bit more time to look at.

What this relates to is gains and losses which have not yet been realized.

So this could come from foreign exchange translation adjustments when we're consolidating overseas subsidiaries.

It could also come from assets which are recorded under US GAAP as available for sale, where we've marked those assets to market and there's a gain or loss, but we haven't run that through the income statement.

All we've done is we've increased or decreased equity directly to match the decrease or an increase in the liability on the balance sheet.

This movement is shown within the comprehensive income statement, but not within the regular income statement under US gap.

Only when those gains or losses are realized does the balance move outta other comprehensive gains or losses and inter retained earnings.

The last item we've gotta cover is treasury stock.

Treasury stock represents the amount of money that has been used to buy back stock in the marketplace.

And you can see here it's a pretty big number, 108.5 billion.

So in this case, our bank has spent nearly $108.5 billion Going out into the marketplace and buying back its own stock.

When a company carries out a stock repurchase, the most typical way that this is accounted for is simply by reducing stockholders' equity on this one line stock held in treasury to balance out against the reduction in cash of 108.5 billion.

As the impact gets more negative, the total shareholder is equity.

There's no other impact on any other equity accounts.