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| LO1 – Identify and explain characteristics of the corporate form of organization and classes of shares. |
The accounting equation expresses the relationship between assets owned by a corporation and the claims against those assets by creditors and shareholders. Accounting for equity in a corporation requires a distinction between the two main sources of shareholders’ equity: share capital and retained earnings. Their relationship to the accounting equation is shown in Figure 11.1.
Figure 11.1 Share Capital Versus Retained Earnings
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