Which of the following accounts are classified as shareholders' equity?

• A. Prepaid Expenses
• B. Inventory
• C. Accounts Payable
• D. Common Stock

Answer: (D)

Verified step by step guidance

1. Understand the concept of shareholders' equity: Shareholders' equity represents the owners' claim on the assets of a company after all liabilities have been deducted. It typically includes accounts such as Common Stock, Retained Earnings, and Additional Paid-In Capital.
2. Analyze each account provided in the question: Prepaid Expenses, Inventory, Accounts Payable, and Common Stock.
3. Classify Prepaid Expenses: Prepaid Expenses are considered an asset because they represent payments made in advance for goods or services to be received in the future. They are not part of shareholders' equity.
4. Classify Inventory: Inventory is also an asset, as it represents goods available for sale or production. It is not part of shareholders' equity.
5. Classify Accounts Payable and Common Stock: Accounts Payable is a liability, as it represents amounts owed to creditors. Common Stock, however, is part of shareholders' equity because it represents ownership in the company issued to shareholders.