Owners Equity

Owners Equity refers to the owners' claim to the business assets.

A claim is the right to ownership or payment that an entity has against a company's asset.

The owners' claims include capital stock and retained earnings.

Capital stock is the amount of capital provided by owners (shareholders) in exchange for ownership in the company.

Retained Earnings

Retained earnings are business profits not paid out to owners as dividends, which are reinvested in the company.

Retained earnings provide internal financing for company growth. When a company retains profits instead of distributing them as dividends, it can invest those funds in expansion, new product development, and increased production capacity, which can drive sales growth.