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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

What effect does revenue have on retained earnings?

Revenue only affects assets, not retained earnings.

Revenue increases retained earnings by increasing net income.

Revenue decreases retained earnings by increasing expenses.

Revenue has no effect on retained earnings.

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Verified step by step guidance

Understand the relationship between revenue and retained earnings: Revenue is a component of net income, and net income directly impacts retained earnings.

Recall the formula for retained earnings: Retained Earnings = Beginning Retained Earnings + Net Income - Dividends.

Recognize that revenue contributes to net income, which is calculated as: Net Income = Revenue - Expenses.

When revenue increases, assuming expenses remain constant, net income increases. This increase in net income leads to an increase in retained earnings.

Conclude that revenue has a positive effect on retained earnings by increasing net income, which is added to retained earnings after accounting for dividends.