Shareholders' equity increases because of two primary reasons, which are the

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Shareholders' equity increases due to the sale of stock, which brings new capital into the business, and the earning of income, which increases retained earnings. Payment of dividends actually decreases equity, and the collection of cash or payment of expenses impacts the company's cash flow and income statement but not directly its initial equity increase.

Shareholders' Equity Increases Because of Two Primary Reasons, Which Are