Financial deficits are created when:
A)profits and retained earnings are greater than the capital-spending requirement.
B)profits and retained earnings are less than the capital-spending requirement.
C)profits and retained earnings are equal to the capital-spending requirement.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

Financial deficits occur when a company's profits and retained earnings are less than the amount required for capital spending. This means that the company is spending more on capital expenditures than it is generating in profits and retaining in earnings, resulting in a deficit. Option A and C are incorrect because they suggest that deficits are created when profits and retained earnings are either greater than or equal to capital spending requirements, which is not the case. Option D and E are also incorrect as they do not provide a clear answer.

Financial Deficits Are Created When