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

Retained earnings represents:

The total amount of cash held by a company at the end of the year.

The cumulative net income of a company that has not been distributed to shareholders as dividends.

The total value of a company's issued common stock.

The amount of revenue earned from sales during the current period.

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Verified step by step guidance

Understand the concept of retained earnings: Retained earnings represent the cumulative net income of a company that has not been distributed to shareholders as dividends. It is a key component of shareholders' equity on the balance sheet.

Clarify the incorrect options: Retained earnings are not the total amount of cash held by a company at the end of the year, nor are they the total value of a company's issued common stock or the revenue earned from sales during the current period.

Relate retained earnings to financial statements: Retained earnings are calculated using the formula: Retained Earnings = Beginning Retained Earnings + Net Income - Dividends. This shows how net income and dividends impact the retained earnings balance.

Highlight the importance of retained earnings: Retained earnings are reinvested into the company for growth, such as funding operations, paying off debt, or investing in new projects, rather than being distributed as dividends.

Connect retained earnings to decision-making: Understanding retained earnings helps stakeholders assess how much profit the company has retained for reinvestment and growth, which is crucial for evaluating the company's financial health and strategy.