What are the two components of Equity?

The correct answer is indeed the combination of Common Stock and Retained Earnings. These two components represent the ownership interest that shareholders have in a company, which is a fundamental part of a company's equity.

Common Stock refers to the shares issued by a company that represent ownership in the company. When shareholders purchase common stock, they invest in the company's capital, and this investment is recorded under equity, reflecting the funds contributed by the owners.

Retained Earnings represent the cumulative profits that a company has earned since its inception, minus any dividends paid to shareholders. This amount indicates how much profit has been reinvested in the business over time rather than being distributed as dividends.

Together, these two elements provide a complete picture of the equity section of the balance sheet, as they encompass both the initial investment made by the owners (Common Stock) and the profits that have been retained within the business to help it grow (Retained Earnings). This is fundamental to understanding how a company finances its operations and rewards its shareholders.

The other options do not accurately reflect the components of equity. For example, Total Assets is total wealth, not a component of equity, and Liabilities represent obligations that a company has, which are separate from equity. Current Liabilities are short-term