Why Separate Paid in Capital from Earned Capital?

Answer

Paid in capital should be recorded separately from the earned capital since they they are completely different earnings and have different sources. Paid in capital is a type of capital that comes from the stock holders from sale of stocks while earned capital is the profit the company gained from its operation. Keeping the two in the same record will result to misrepresentation of earnings.
Q&A Related to "Why Separate Paid in Capital from Earned Capital..."
Legal capital is defined as the par value capital, the base amount of the paid-in capital. A stock's par value, or face value, is the stated value on each share of the stock. Companies
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Paid-in capital is the funding provided to a firm from the sale of. capital stock. (common, preferred shates) while earned capital is money that the firm earns as a result of profitable
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When investors give capital in exchange for stock that is called paid in capital and it can include capital stock and funds that come from the stockholders.
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The importance of keeping paid capital separate from earned capital is that stockholders paid based on the earned capital.
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