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Part $1$

When will retained earnings contain a positive$$ balance? Negative$$ balance?$$

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Part $1$

A$.$

Cash fluctuations increase or decrease retained earnings. We represent retained earnings in equation form as$$ follows: ending retained earnings equals beginning retained earnings plus changes in cash. When cash$$ increases, retained earnings is positive. Retained earnings is negative when cash decreases. A negative balance in retained earnings is called a deficit.

B$.$

Revenue and gains increase retained$$ earnings, whereas$$ expenses, losses, and distributions to owners$($dividends$)$ decrease retained earnings. When revenues and gains exceed$$ expenses, losses, and dividends over$$ time, retained earnings is positive. Retained earnings is negative when$$ expenses, losses, and dividends exceed revenues and gains over time. A negative balance in retained earnings is called a deficit. The retained earnings balance should always equal the cash balance.

C$.$

Revenue and gains decrease retained$$ earnings, whereas$$ expenses, losses, and distributions to owners$($dividends$)$ increase retained earnings. When revenues and gains are less than$$ expenses, losses, and dividends over$$ time, retained earnings is negative. Retained earnings is positive when$$ expenses, losses, and dividends exceed revenues and gains over time. A negative balance in retained earnings is called a gain.

D$.$

Revenue and gains increase retained$$ earnings, whereas$$ expenses, losses, and distributions to owners$($dividends$)$ decrease retained earnings. When revenues and gains exceed$$ expenses, losses, and dividends over$$ time, retained earnings is positive. Retained earnings is negative when$$ expenses, losses, and dividends exceed revenues and gains over time. A negative balance in retained earnings is called a deficit.