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Multiple Choice
Profits earned by a company that have not been paid to stockholders are called:
A
Paid-in capital
B
Dividends
C
Revenue
D
Retained earnings
Verified step by step guidance
1
Understand the concept of retained earnings: Retained earnings represent the portion of a company's profits that are not distributed to shareholders as dividends but are instead reinvested in the business or held for future use.
Differentiate retained earnings from other terms: Paid-in capital refers to funds raised from shareholders in exchange for stock, dividends are payments made to shareholders from profits, and revenue is the income generated from business operations.
Recognize the role of retained earnings in financial statements: Retained earnings are reported in the equity section of the balance sheet and are adjusted each period based on net income and dividends paid.
Connect retained earnings to the problem: The question asks for the term describing profits not paid to stockholders, which aligns with the definition of retained earnings.
Reinforce understanding: Retained earnings are a key indicator of a company's ability to reinvest in growth and manage its financial health over time.