What constitutes a company's stockholders' equity?

Stockholders' equity represents the owners' claim on the assets of a company after all liabilities have been deducted. It is primarily composed of two main components: common stock and retained earnings.

Common stock reflects the initial capital that shareholders have invested in the company, signifying ownership. Retained earnings represent the accumulated profits that a company has reinvested into the business rather than distributing them as dividends to shareholders. Together, these components give a clear picture of what the shareholders own in the company.

The other options do not accurately represent stockholders' equity. Property and equipment are classified as assets, not equity. Accounts receivable and payable involve the company's obligations and what is owed to the company, respectively, and are also not part of equity. Long-term debt and liabilities reflect the company's obligations to creditors, which reduce the equity available to shareholders rather than contribute to it. Therefore, the choice representing common stock and retained earnings accurately captures what constitutes a company's stockholders' equity.