Here comes a 60 second recapitulation of what shareholder equity or shareholder interest really is.
Remember - understanding of the financial terms and the numbers behind your financial status strenghten you when negotiating with lenders and investors.
Let's start with the balance sheet, the "best" and most proper description of how a company stands at a given moment. A balance sheet is thus, not a description over a time period, but only the financial status related to one single date. Even though a balance sheet could give an indication of the past, the financial history is best understood by analyzing the income accounts - profit & loss.
The Balance Sheet attempts to show the assets and liabilities of a company
Assets consist of physical property, money it holds or has invested, money that is owed to the company and intangible assets (e.g. goodwill).
Liabilities consist of the debt, reserves of various kinds and the equity (what a company owes it shareholders). Debts due to ordinary course of business is presented as "Account Payable", formal borrowing such as Bonds / Notes Outstanding and finally Reserves.
Where do we find the shareholders' interest?
The shareholders' interest is shown on the liability side often as "Capital & Surplus". This equity appears on the liability side since they are actually money that the company owe to it's shareholders. Consider the shareholders' interest as the difference between the company's assets and it's liabilities.
SUMMARY: The shareholders' interest (or "Capital & Surplus") is the amount required in order to balance the two sides - Assets vs Liabilities.
