Question

Retained earnings will change from time to time due to several factors. What factors will explain the increase in retained earnings?

Answer 1

Retained earnings is an accumulation of wealth/ income kept separately by the business unit for upcoming use. So the factor that escalates the income of the business that would be the correct answer.

a. Net Loss = It decreases the income previously earned by the business in preceding years.

b. Net Income = It enhances the income already made by the business in prior year.

c. Dividends = It once more diminishes the accumulated income of the business.

d. Investments by stock holders = This is not a Income but is a liability for the business as it is to be paid back on liquidation .