Question

Retained earnings will change over time because of several factors. Which of the following factors would explain an increase in retained earnings?

• A. Net loss
• B. Net income
• C. Dividends
• D. Investments by stockholders

Answer 1

The correct option is B Net income

Profits generated by a company that are not distributed to stockholders (shareholders) as dividends but are either reinvested in the business or kept as a reserve for specific objectives are called retained earnings.

In simple terms profits which are kept by the business and not distributed to shareholder is called retained earnings. Retained earnings are reduced by losses and use of the fund. It can be increased by profits and non-distribution of dividends.