Assets: Assets are used by an organization to carry out its activities like manufacturing and sales. The assets used by an organization have the capacity to offer future benefits to the organization.
Liabilities: Liabilities are termed as the claims against assets, which incorporate the obligations of a company. Example, when an organization borrows money for expansion from creditors, it becomes its obligation.
Shareholder’s Equity: Shareholder’s equity can be termed as the claims made by the owners of an organization. Shareholder’s equity consists of common stock and Retained Earning. These form the basic components of shareholder’s equity.
Common Stock: When an organization obtains funds by issuing and selling shares to investors, the total amount raised or paid by the shareholders is considered as common stock.
Retained Earnings: Retained Earnings can be defined as the earnings or net income, which is the remaining balance after the payment of dividends to shareholders. It is added in shareholders’ equity. Revenue, expenses and dividends are the three main elements, which constitute retained earnings.
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