# ASC 505-10-05: Equity — Overall — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/505/10/#05-overview-and-background) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:2a8616f829f71da43587341d3d3c38f7bb83734d76e760741f52df51606f1244 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 505-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/505/10/#05-overview-and-background) SEC content: no ##### [505-10-05-1](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:79223b3c1dc28f9e98807d342390e3e001eb014737e8f04c90662d9128419c50 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Equity Topic includes the following Subtopics: 1. a Overall 2. b Stock Dividends and Stock Splits 3. c Treasury Stock 4. d [Subparagraph superseded by Accounting Standards Update No. 2018-07](https://asc.understandingaccounting.org/updates/asu-2018-07/). 5. e Spinoffs and Reverse Spinoffs. ##### [505-10-05-2](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:f87ecfb67e49af2cc2268bde05f4fce7c6ac72c16634fcb5f4edde7cc4634c11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Overall Subtopic addresses financial accounting and reporting for equity-related matters not specifically addressed in the other Subtopics of the Equity Topic or other Topics that also address equity matters. ##### [505-10-05-3](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:4890b0893f218bf017c2fb233f6e136f3eb3e47711fdbf2bc996233148ddc900 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Equity, sometimes referred to as net assets, is the residual interest in the assets of an entity that remains after deducting its liabilities. The Subtopics of the Equity Topic provide guidance on several specific elements of transactions, accounts and financial instruments that are classified as components of equity as well as overall general guidance related to equity. Issues that relate to whether a specific financial instrument shall be classified as equity or outside of the equity classification are addressed in Topic 480 as well as other Topics (such as Topic 815 on derivatives and hedging) that address these classification matters. ##### [505-10-05-4](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:043b07139d00e95e4577611928aea6df3879daafe7f55fc656d223ebf38c2290 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other Topics, including industry-specific Topics, also contain guidance related to specific equity matters associated with those Topics. Equity guidance in those Topics is intended to be incremental to the guidance otherwise established in this Topic. #### Convertible Preferred Stock ##### [505-10-05-5](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:7ac9e404159cdf514fa988ce0251a1157b3bddb498794e6f21ab30875943b39e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entities may issue convertible preferred stock that may be convertible into common stock at the lower of a conversion rate fixed at time of issuance and a fixed discount to the market price of the common stock at the date of conversion. ##### [505-10-05-6](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:01cb167d6a58452972d02731df19a4bc24d1731bae79500b0903e8144a47625d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Certain convertible preferred stock may have a contingently adjustable conversion ratio. Examples of a conversion price that is variable based on future events are the following: 1. a A liquidation or a change in control of an entity 2. b A subsequent round of financing at a price lower than the [convertible security](https://asc.understandingaccounting.org/glossary/c/#convertible-security "A security that is convertible into another security based on a conversion rate. For example, convertible preferred stock that is convertible into common stock on a two-for-one basis (two shares of common for each share of preferred).")'s original conversion price 3. c An initial public offering at a share price lower than an agreed-upon amount. ##### [505-10-05-7](https://asc.understandingaccounting.org/asc/505/10/#505-10-05-7) Pending content: no Source downloaded (UTC): 2026-09-10T00:36:34.119Z to 2026-09-10T00:36:34.119Z Record version: sha256:2f2da9ddd6f456e533e745f04cf9a53a9a666f0e565dbad11d9e08c67aa02f58 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Certain convertible preferred stock may become convertible only upon the occurrence of a future event outside the control of the holder.