Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 5

For the following questions, circle the best response.

Retained Earnings is not

a. increased by net income.

b. decreased by expenses.

c. increased by revenues.

d. decreased by dividends declared.

e. decreased by gains and losses.

Step 1 of 2

Retained earnings are the net income not paid out as dividends which is the difference of net income and dividends. The retained earnings are increased by net income and revenues and decreased by expenses and dividends declared. Revenues increase net income and expenses reduce net income. Therefore, these affect retained earnings. The correct option is e i.e. Decreased by gains and losses.