Question

Equity financing is financing obtained from:

stockholders.

selling goods or services on credit.

creditors.

both creditors and stockholders.

Answer 1

There are two types of financing options:

Equity and Debt.

Equity is financed by stockholders. They are the owners of the company. They are entitled to share of profits after all expenses are paid off.

Debt is financed by creditors who are entitled to interest on the amount financed.

When the company purchases goods and services on credit, the entities supplying the goods and services are the creditors.

Both creditor’s fund and the fund of stockholders appear on the liabilities side of the balance sheet.

In short, Supplier of goods & services on credit and suppliers of debt finance are creditors.

Suppliers of equity finance are Shareholders.