Question

Assume the beginning balance in the Retained Earnings account is zero. If a debit balance exists in Retained Earnings after closing out revenues and expenses at the end of the current period, it indicates:

a) A decrease in cash for the current period
b) The company incurred a net loss for the current period
c) The company had net income for the current period
d) An increase in cash for the current period

Answer 1

A debit balance in the Retained Earnings account after closing out revenues and expenses indicates a net loss for the current period. Option b

Step-by-step explanation:

A debit balance in the Retained Earnings account after closing out revenues and expenses at the end of the current period indicates that the company incurred a net loss for the current period.

Retained Earnings is a key account on a company's balance sheet that shows the accumulated profits or losses of the company over time. A debit balance in Retained Earnings means that the company's expenses for the current period exceed its revenues, resulting in a net loss.

Therefore, option b) The company incurred a net loss for the current period is the correct answer.