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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following best describes the normal balances in stockholders' equity accounts?

Common Stock has a credit balance; Retained Earnings has a debit balance.

Common Stock and Retained Earnings have credit balances.

Both Common Stock and Retained Earnings have debit balances.

Common Stock has a debit balance; Retained Earnings has a credit balance.

Previous problemNext problem

Verified step by step guidance

Understand the concept of normal balances: In accounting, normal balances refer to the side (debit or credit) where increases in an account are recorded. For stockholders' equity accounts, increases are typically recorded on the credit side.

Review the components of stockholders' equity: Common Stock and Retained Earnings are both part of stockholders' equity. Common Stock represents the ownership interest of shareholders, while Retained Earnings represent accumulated profits that have not been distributed as dividends.

Determine the normal balance for Common Stock: Common Stock is a stockholders' equity account, and increases in equity accounts are recorded as credits. Therefore, the normal balance for Common Stock is a credit balance.

Determine the normal balance for Retained Earnings: Retained Earnings is also a stockholders' equity account. Since increases in equity accounts are recorded as credits, the normal balance for Retained Earnings is a credit balance.

Compare the options provided in the problem: Based on the analysis, the correct description is that both Common Stock and Retained Earnings have credit balances. This aligns with the principles of accounting for stockholders' equity accounts.