Question

A net loss on the income statement reduces what account in the stockholders' equity section of the balance sheet

Answer 1

Answer:

b) retained earnings

Explanation:

Retained earnings refer to the profits earned to date a business after dividends and/or other profits appropriation and distributions to investors have been deducted. Retained earning is included under the the stockholders' equity section of the balance sheet together with ordinary shares and preferences.

In each financial year that a business is in operation, the profit from the financial statement after deducting dividends and distributions to investors is added to the retained earnings, while a loss from the financial statement for the year is deducted from the retained earnings. The effect of the addition of the remaining profit not distributed to shareholders is to increase the retained earnings, while the effect of a loss is to reduce it.

Therefore, retained earnings is the account in the stockholders' equity section of the balance sheet that is reduced by net loss on the income statement.

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Answer 2

The only answer here that would appear in the stockholders' equity section is retained earnings. Having a net loss in the income statement would mean there is less earnings to retain.