We're now going to take a look at the equity section of a balance sheet. And we can see here Goldman Sachs's shareholders' equity on its financial statements. You can see that there are lots of different accounts here, and we're going to 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 corporation 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 $52 billion, a much larger amount. We can also see in the label for common stock, it tells us 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 stock issuance. When a company or a bank issues new stock, the first thing that they will do is that they will 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, but the par value is only going to be recorded as 1 cent. Well, how do we deal with this? Firstly and easiest is that we'll increase cash by a cent and we'll increase the common stock by a cent. Everything balances, no problem. However, remember we actually received $250 in cash, so where does the rest go? Well, what we'll do is we'll put it into additional paid-in capital, so the surplus or the $249.99 will go into additional paid-in capital, and that will be balanced by an increase in cash of the same amount. Easy, we all balance. And this means we'll have two accounts on the balance sheet which relate to the issuance of new stock, common stock and additional pay-in capital.

The other important account in the equity section is retained earnings. And you can see here this is a big number. It's, in fact, the biggest single equity account here at $89 billion.

So, let's take a look at the entries into and out of retained earnings. Retained earnings is going to capture all the items, the revenues and expenses and income that are recorded on 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. Let's see how this works.

Let's assume we start out with a beginning balance of retained earnings of $80 billion here. That is the starting point at the beginning of the year, which means the bank or the corporation has already been operating. We'll add the reported net income for the year, which in this case is 20 billion, which will also be recorded on the income statement. Now, if the corporation pays dividends, this means that cash has gone down and also we will reduce retained earnings because those earnings are now no longer retained in the business, they've been paid out to stockholders. So, at the end of the year we get an ending balance of $90 billion. We started 80, we added 20 billion of earnings generated during the year, and we paid out 10 billion of dividends to give us an any balance of 90.

Now, you can see that there are many other equity accounts that we haven't mentioned so far, so let's do a quick review. The first one we skipped was preferred stock. Preferred stock is different common stock in that it has a preferred claim against the assets of the business. So, if the business is liquidated, the preferred stockholders get paid out first. It's fairly uncommon to see this in corporations, but you do see it for financial institutions as often they use it as part of their capital allocation for the regulators. We've got some share-based awards here, and this relates to the equity that has been issued or the options issued to employees in the business. We've also got some non-voting common stock, this is pretty unusual. And you can see at the moment it has a zero value on the financial statements, so we're not gonna say any more about that.

The accumulated other comprehensive loss is worth understanding. What this relates to is gains and losses which have not been realized. So, this could come from foreign exchange translation adjustments when we're consolidating overseas subsidiaries. It also could come from assets which are recorded as available for sale under US GAAP where we've marked the assets to market and there's a gain or loss, but we haven't run it through the income statement. All we've done, we've increased equity directly by increasing or decreasing its loss the accumulated other comprehensive income or loss. Under US GAAP, when those gains and losses are realized, it comes out of here and goes into retained earnings.

The last item we've got to 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, it's nearly $69 billion. So, in this case, Goldman Sachs has spent nearly $69 billion going out into the marketplace and buying back its own stock. We don't reduce the other equity accounts, all we do is we reduce cash by $68.6 billion and we will reduce shareholders' equity by $68.6 billion. This is what we call a contra account. As this gets more negative, the total shareholders' equity falls. So, that's it for the equity accounts for Goldman Sachs.