Tuesday, September 27, 2011

What's the difference between capital stock and retained earnings?

I am stuck using the accounting equation...





When you pay rent it decreases cash but does it decrease capital stock or retained earnings?





If you receive cash for fees earned, it increases cash but does it increase capital stock or retained earnings?





If you pay salaries does it decrease retained earnings or capital stock?





If you pay dividends it decreases cash but what else?





If you pay interest what does it decrease?





These are questions in the book that it says I should know how to do but I don't. If you feel that you don't want to give me the answers, than just tell me how? PLEASE, THANKS.|||When you pay rent, it decreases cash and increases a rent asset, or it decreases a rent liability if rent were paid after the fact.





Retained earnings doesn't decrease. It is merely a running total of the profit that the company keeps at the end of each accounting year. It is only changed once per year after you close out your accounts, so it won't change when all of these little accounts change mid-year.





Capital stock and retained earnings have nothing to do with the items posted, but I'm not sure about the dividends one. I don't know what other account would be affected.

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