Shareholder's Equity

The video explains shareholders equity as a key component of the balance sheet, detailing its formation through initial contributions, retained earnings, additional capital, and equity compensation. Shareholders equity is the sum of initial capital, retained earnings, and any additional contributions, including equity given as compensation. It highlights how profits retained in the company and additional stock purchases contribute to the equity value.

What does the balance sheet accounting equation state?

• Assets equal shareholders' equity minus liabilities

• Assets equal liabilities minus shareholders' equity

• Assets equal liabilities divided by shareholders' equity

• Assets equal liabilities plus shareholders' equity

How do retained earnings contribute to shareholders' equity?

• By being distributed as dividends

• By being used to pay off liabilities

• By being converted into liabilities

• By being retained in the company

What is one way shareholders can add additional capital to a company?

• By withdrawing dividends

• By purchasing more stock

• By selling their shares

• By reducing liabilities

What is equity compensation?

• Cash payment to employees

• Reduction in liabilities

• Increase in retained earnings

• Equity given in exchange for work

What happens when shareholders contribute effort to a company?

• They increase the company's assets

• They reduce the company's liabilities

• They receive equity as compensation

• They receive cash compensation