Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance?
A)Net income increases the ending balance of retained earnings.
B)A net loss decreases the ending retained earnings balance.
C)A net loss does not affect the ending retained earnings balance.
D)Net income and net loss both affect the ending retained earnings balance.

Question

Quizplus · Accepted Answer

A net loss does in fact decrease the ending retained earnings balance. The ending retained earnings balance is calculated as beginning retained earnings plus net income (or minus net loss) minus dividends. Therefore, if there is a net loss, it will decrease the ending retained earnings balance.

Which of the Following Statements Does Not Correctly Describe the Relationship