Question

Which of the following statements is true?
a. If revenues are less than expenses, the company has a net loss and retained earnings decreases.
b. If revenues are greater than expenses, the company has net income and contributed capital increases.
c. If revenues are less than expenses, the company has a net loss and contributed capital increases to balance off the loss.
d. If revenues are greater than expenses, the company has net income and retained earnings decreases

Answer 1

Answer:

a. If revenues are less than expenses, the company has a net loss and retained earnings decreases.

Explanation:

Retained earnings is defined as the portion of income a company retains for internal operations, reinvest into the business, or repay debt.

It is derived by removing dividends paid to shareholders net income of a company.

So of the revenues of a company are less than its expenses a company will have no choice but to use its retained earnings to run internal operations.

This reduces the retained earnings of the company.