Q:

Is common stock an asset or liability?

A:

Quick Answer

According to Accountingbase.com, common stock is neither an asset nor a liability; it is considered equity. Equity is basically considered to mathematically be the difference between the total assets and total liabilities of a company. A company that has positive equity is considered to be doing well, while one with negative equity is theoretically owned by creditors because the company owes more money than it has or is producing.

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Full Answer

AccountingCoach notes that because many of a company's assets may be valued at cost or lower than cost rather than market value, a company's equity does not necessarily equal the company's market value, though it can indicate the company's "book" value. Common stocks are the ownership shares purchased in a company. Common stocks are also known as stockholder's equity. The stockholders elect directors to the board and share in the company's profits by way of dividends depending on their percentage of ownership stock. If the company is owned by a single individual, the common stock or stockholder's equity may also be referred to as the owner's equity on the balance sheet.

A company's liabilities are amounts that are owed to banks, vendors and other creditors including loans, accounts payable and payroll. Assets are the things the company owns, including real estate, vehicles, machinery, accounts receivable, cash and equipment, notes AccountingCoach.

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