Net income affects retained earnings by which of the following?

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Multiple Choice

Net income affects retained earnings by which of the following?

Explanation:
Net income increases retained earnings because retained earnings track the profits kept in the business rather than distributed to shareholders. At period end, the profit earned (net income) is closed into retained earnings, boosting the cumulative balance. If dividends are paid later, they reduce retained earnings, which is why ending retained earnings = beginning retained earnings + net income − dividends. Net income does not affect APIC, which changes only with capital transactions like stock issuances. So the effect is that net income adds to retained earnings.

Net income increases retained earnings because retained earnings track the profits kept in the business rather than distributed to shareholders. At period end, the profit earned (net income) is closed into retained earnings, boosting the cumulative balance. If dividends are paid later, they reduce retained earnings, which is why ending retained earnings = beginning retained earnings + net income − dividends. Net income does not affect APIC, which changes only with capital transactions like stock issuances. So the effect is that net income adds to retained earnings.

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