Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Retained Earnings

Financial Accounting

12. Stockholders' Equity

Retained Earnings

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Multiple Choice

A net loss ______ retained earnings.

decreases

doubles

has no effect on

increases

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Understand the concept of retained earnings: Retained earnings represent the cumulative amount of net income or net loss that a company has retained (not distributed as dividends) over time.

Recognize the relationship between net income or net loss and retained earnings: Net income increases retained earnings, while a net loss decreases retained earnings.

Analyze the options provided: 'Decreases' aligns with the effect of a net loss on retained earnings, as it reduces the cumulative amount. The other options ('doubles,' 'has no effect on,' 'increases') do not accurately describe the impact of a net loss.

Apply the principle: When a company incurs a net loss, it subtracts the loss amount from the retained earnings balance, thereby decreasing it.

Conclude that the correct answer is 'decreases,' as this reflects the direct impact of a net loss on retained earnings.