The two main categories of equity on a company's balance sheet are separated into:
A) Retained earnings and dividends
B) Share capital and dividends
C) Share capital and retained earnings
D) Retained earnings and reserves

Question

Quizplus · Accepted Answer

The two main categories of equity on a company's balance sheet are share capital and retained earnings. Share capital represents the funds raised by the company through the issuance of its shares, while retained earnings represent the portion of the company's profits that have been retained instead of being distributed as dividends to shareholders. Therefore, option C - share capital and retained earnings - is the correct answer. Option A is incorrect because dividends are not considered a separate category of equity on a company's balance sheet. Option B is incorrect because share capital and dividends do not represent two distinct categories of equity. Option D is incorrect because reserves are a subcategory of retained earnings.

The Two Main Categories of Equity on a Company's Balance