What occurs when a company issues shares of common stock?

When a company issues shares of common stock, it typically receives cash or other assets in exchange for those shares, leading to an increase in assets. The corresponding increase in stockholders' equity occurs because the issuance of common stock represents an ownership interest in the company that is recorded as part of equity. Therefore, both assets and stockholders' equity rise as a result of this transaction.

This reflects a fundamental principle of accounting, where the equation Assets = Liabilities + Stockholders' Equity must always hold true. In the case of issuing common stock, since no liabilities are created in this transaction, it results directly in the growth of both assets (like cash from the sale of stock) and equity (as the ownership stake of investors increases).