[starz13]

Hi what does it mean by distribution in the accounting equation. Does this include things like discounts or money given to shareholders.

[ArcSine]

Hi, starz13...

Very generally, "distribution" includes any unilateral transfer of value from a corporation to a shareholder; 'unilateral' in the sense that the distributee-shareholder doesn't give any value or consideration back in exchange.

"Money given to shareholders"--one that you specified-- is certainly the most common form of distribution, aka 'dividend'. But a distribution can be anything of value, including a discount on a sale of corporate property to a shareholder. For example, if a corp sells to a shareholder a piece of property for $8, when such property would have sold to any unrelated party at its fair value of $10, then the transaction is best viewed as two simultaneous components: (1) Shareholder pays $10 for the property; and (2) Corp gives two bucks back to shareholder as a dividend (distribution).

Thus, Corp should book the $8 "sale" as a $10 sale and a $2 dividend payout.

Just make sure that the recipient-shareholder didn't transfer anything of value to the corp in exchange for some or all of the purported dividend. If, say, the shareholder is also a working employee of the corporation, the 'distribution' might more properly be classified as compensation rather than as a dividend.

If by "accounting equation" you're referring to the classic identity
Assets = Debt + Equity
... then most shareholder distributions preserve the equality by reducing Assets and Equity by the same amount.

Hope this helps!

...it was early and I was full of no coffee...