Net Income increases which component on the Balance Sheet?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Enhance your financial acumen with our Investment Banking Basics Test. Prepare with diverse questions, flashcards, and detailed explanations. Confidently step into your exam day!

Multiple Choice

Net Income increases which component on the Balance Sheet?

Explanation:
Profits earned during the period add to the owners’ stake in the company by increasing retained earnings, which sits under shareholders’ equity on the balance sheet. Net income, when not distributed as dividends, becomes part of retained earnings, reflecting accumulated profits that the company keeps to reinvest. It does not directly raise current assets or long-term liabilities—those accounts change only through other business activities. If dividends are paid, they would reduce retained earnings, but the primary link is that net income increases retained earnings within equity.

Profits earned during the period add to the owners’ stake in the company by increasing retained earnings, which sits under shareholders’ equity on the balance sheet. Net income, when not distributed as dividends, becomes part of retained earnings, reflecting accumulated profits that the company keeps to reinvest. It does not directly raise current assets or long-term liabilities—those accounts change only through other business activities. If dividends are paid, they would reduce retained earnings, but the primary link is that net income increases retained earnings within equity.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy