Which of the following are components of equity?

• A. The total liabilities of the company.
• B. Capital stock, excess paid in capital, and retained earnings.
• C. Revenues and expenses.
• D. Cash and accounts receivable.

Answer: (B)

Equity is the owners’ residual interest in the company, representing what the owners have invested plus what the company has earned and kept. The components of equity include capital stock (the basic contributed capital), excess paid in capital (additional paid-in capital above par value), and retained earnings (cumulative profits kept in the business). These items together show the funds provided by owners and the profits the company has decided to retain, forming the owners’ claim after liabilities are subtracted from assets.

Total liabilities are not part of equity; they represent what the company owes. Revenues and expenses are income statement items that affect net income and, through that, retained earnings, but they are not themselves equity line items. Cash and accounts receivable are assets, not equity.