Quasi-Equity Items
August 26th, 2010
Quasi-equity items are accounts that have been recorded as liabilities for accounting purposes, but should be treated as equity for purposes of determining how much capital the shareholders have invested. In Germany, companies can set aside reserves for unspecified future purposes. They typically use these reserves to smooth out earnings. The reserves do not represent liabilities in the sense of amounts that are known and payable at a certain time. We generally treat these as quasi- equity accounts.
Deferred income taxes are the most typical quasi-equity account for U.S. companies. Until the taxes are paid to the government, the funds belong to the shareholders and the shareholders expect to earn a return on these funds.
Filed under: Equity