On the balance sheet, retained earnings represents
A)net profits for the current year
B)net profits for the current year minus preferred stock dividends
C)cash reinvested in fixed assets to support growth
D)the cumulative total of earnings reinvested in the firm.
E)none of the above

Question

Quizplus · Accepted Answer

Retained earnings represent the cumulative total of earnings that have been reinvested in the company over the years. This includes net profits after paying dividends, as well as any additional funds that the company has chosen to retain and reinvest in the company, rather than distribute as dividends. Option A and B are incorrect because net profits for the current year or net profits for the current year minus preferred stock dividends do not include previous years' earnings. Option C is also incorrect because retained earnings do not represent cash reinvested in fixed assets specifically; rather they represent all earnings reinvested in the firm.

On the Balance Sheet, Retained Earnings Represents