Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

Retained earnings represent profits that a company has earned but not distributed to shareholders in the form of dividends. However, the balance sheet only shows the accumulated retained earnings and does not necessarily reflect the current cash position of the company. Therefore, a company may have a large amount of retained earnings but still need to borrow cash to make required payments. Option A is incorrect because depreciation is a non-cash expense that reduces net income, which in turn reduces retained earnings. Option C is incorrect because common equity includes common stock and retained earnings, but not accumulated depreciation. Option D is incorrect because retained earnings represent the accumulated profits of a company, not the amount of cash available for paying dividends. Option E is incorrect because even if a company reports a loss on its income statement, it may still have positive retained earnings from prior periods, which will be reflected in the balance sheet.

Which of the Following Statements Is CORRECT