If retained earnings decreased during the year,and no dividends were paid,which of the following must be true?
A)Expenses for the year exceeded revenues
B)The company did not have enough cash to pay its expenses
C)Total equity decreased
D)Liabilities increased during the year

Question

Quizplus · Accepted Answer

Retained earnings are a part of equity and they represent the accumulated earnings that have not been paid out as dividends. If retained earnings decrease during the year and no dividends were paid, it means that the company incurred a net loss for the year (revenues were less than expenses). Therefore, option A is the correct answer. Option B is incorrect because retained earnings have nothing to do with the company's cash position. Option C is incorrect because retained earnings are a part of equity, so if retained earnings decrease, total equity will also decrease. Option D is incorrect because there is no direct relationship between retained earnings and liabilities.

If Retained Earnings Decreased During the Year,and No Dividends Were