Explain and demonstrate how capital transactions are accounted for in Essay - 1

Explain and demonstrate how capital transactions are accounted for in a partnership - Essay Example These two categories majorly differ in the rights they bestow upon their owners. Common stock is simply the partial ownership of company where an investor buys stocks traded by the company through public offer. Investors may trade these stocks amongst themselves on the secondary market. The primary goal of buying these stocks is to earn dividends should the company make profit. Every common stock is a representation of a certain proportion of ownership in a company. for example if a company has 500,000 shares of common stock and an investor owns 5 of them, then we can say that he or she owns 5/500,000th of the company and same percentage of profit share. Preferred stock just like common stock represents partial ownership in a company. However, preferred stock shareholders do not enjoy other privileges like the voting rights. In this category investors are paid a fixed dividend not based on the number of shares owned. However the company may fail to pay dividends due to the financial challenge. In such cases, dividends of the preferred shareholders are always paid off first before common shareholders. Investors whether common or preferred have the ownership right of the company. A stockholder has a say in the running of the company. The most significant thing about stocks is that it is a high return investment. Stocks whether preferred or common have better return. Both kinds of stock pay dividends. Stocks generally can be a kind of dangerous investment. This is true for both preferred and common stock. Investors can lose all the money if the company runs at a significant loss. One major difference between common stock and the preferred stock is that shareholders with common stock are paid dividends proportional to the number of stock owned by an individual. However preferred stock shareholders are paid fixed dividend. It is beneficial to own preferred stock. This is because as a