Question

If revenues exceed expenses for the accounting period, the retained earnings account: a. Will have a lower balance after closing. b. Will have a debit balance prior to closing. c. Will have a higher balance after to closing. d. All of these answer choices are incorrect.

Answer 1

Answer:

The correct answer is letter "D": All of these answer choices are incorrect.

Explanation:

Retained earnings are the part of the company's net profits which does not pay out as dividends to shareholders. The company keeps this money in the business to reinvest it or uses it to pay off a part of its debt.

When revenues of a company exceed the expenses of a period, the firm has net income. Net income is reported as a credit entry. Thus, the retained earnings will have a credit balance prior to closing.