As the company issues common stock, the case is debitedfrom the cash account, and equity account is credited with the same balance. It increases bank balance, as well as equity, thus shows a dual impact on the financial statements (Shin, 2014).This is not done if some transactions do not affect balance sheet such as stock splits and reverse stock splits as the higher number of shares in the outstanding and the value goes to tandem.
Whenever the company issues its equity and raises cash, it reflects in cash flow statement and balance sheet without impacting the income statement. Although, in the income statement, nothing is required to mention about the equities since income statement is concerned only about the sales, expenses and profit. But, payback on equities comes out of the profits of the company which need to be reflected in the income statement. On the flip side, if the payment is made out of the retained earnings, it will also impact the net income of the company and its income statement. So, this is how equities affect the net income and profitability level of business thus affects financial statements (Christensen et al., 2017).
