Question
Multiple Choice Question Retained earnings is a part of stockholders' equity a current liability a conrrent asset
Ask by Kirk Carlson. in the United States
Jan 26,2025
Real Tutor Solution
Tutor-Verified Answer
Answer
Retained earnings is a part of stockholders' equity.
Solution
**Answer:**
**a) a part of stockholders' equity**
**Explanation:**
Retained earnings represent the cumulative net income of a company that has been retained (i.e., not distributed as dividends to shareholders) and is part of the stockholders' equity section on the balance sheet. It reflects the amount reinvested in the business and is used for purposes such as funding operations, paying off debt, or investing in growth opportunities.
- **a) a part of stockholders' equity** – **Correct**
- **b) a current liability** – Incorrect. Current liabilities are obligations the company needs to settle within a year, such as accounts payable or short-term loans.
- **c) a current asset** – Incorrect. Current assets include cash, accounts receivable, and inventory, which are expected to be converted to cash or used within a year.
Reviewed and approved by the UpStudy tutoring team
Like
error msg
Explain 
Simplify this solution Extra Insights
Retained earnings is like a company's piggy bank! It represents the cumulative profits that a business has kept instead of distributing them as dividends to shareholders. This cash can be reinvested into the company for growth or used to pay down debt, adding to its overall value. When it comes to stockholder equity, think of it as the backbone of a company's financial health. Retained earnings play a crucial role in assessing a company's ability to reinvest in itself and provide returns to its shareholders, making it a vital area of interest for investors and stakeholders alike!
