A debit balance in the retained profits account indicates that the company has:
A) made a loss in the current period.
B) made a loss in at least one period.
C) never made a profit.
D) paid a dividend.

Question

Quizplus · Accepted Answer

Retained profits account reflects the accumulated profits of a company that have not been paid out as dividends. If the balance in the retained profits account is negative or debit, it indicates that the company has incurred losses in the past, resulting in a net reduction of its overall profits. Therefore, option B is correct as it states that the company has made a loss in at least one period. Option A could also be correct, but it is a more restrictive statement as it only considers the current period. Option C is incorrect as it is possible for a company to have made a profit in the past, even if the current balance in the retained profits account is negative. Option D is irrelevant to the retained profits account balance.

A Debit Balance in the Retained Profits Account Indicates That