If a company has a deficit in retained earnings:

Question

Quizplus · Accepted Answer

When a company has a deficit in retained earnings, it means that it has accumulated losses over time or has paid out more dividends than the total earnings. This deficit is subtracted from total stockholders' equity to arrive at the company's net worth. Retained earnings, in this case, has a debit balance (negative balance). Option A is incorrect because a deficit in retained earnings means it has a debit balance and not a credit balance. Option C is incorrect because adding a deficit to the equity will decrease the company's net worth. Option D is incorrect because a deficit represents a negative balance, which means that the company has incurred losses and dividends, exceeding its earnings over time.

If a Company Has a Deficit in Retained Earnings