What does the term "deficit" mean in the context of general purpose financial statements?
A)A deficit is when the net income is negative.
B)A deficit is when the retained earnings balance is negative.
C)A deficit is when the current liabilities exceed the current assets.
D)A deficit is when a company borrows money.

Question

Quizplus · Accepted Answer

In the context of general purpose financial statements, a deficit refers to when the retained earnings balance is negative, indicating that a company has accumulated losses over time. This is different from a negative net income, which could be a one-time occurrence, and from a shortfall in current assets compared to current liabilities, which indicates a liquidity problem rather than a long-term financial issue. Borrowing money may contribute to a deficit if interest expenses cause the company to have negative retained earnings.

What Does the Term "Deficit" Mean in the Context of General