Which term describes profits generated from operations that have been reinvested into the business rather than distributed to shareholders?

• A. Paid-in Capital
• B. Dividends Payable
• C. Retained Earnings
• D. Accumulated Depreciation

Answer: (C)

Verified step by step guidance

1. Understand the concept of Retained Earnings: Retained Earnings represent the portion of a company's profits that are reinvested into the business rather than distributed to shareholders as dividends. It is a key component of equity on the balance sheet.
2. Differentiate Retained Earnings from Paid-in Capital: Paid-in Capital refers to the funds raised by the company from shareholders in exchange for shares of stock, not profits generated from operations.
3. Differentiate Retained Earnings from Dividends Payable: Dividends Payable are liabilities representing the amount of dividends declared but not yet paid to shareholders, whereas Retained Earnings are reinvested profits.
4. Differentiate Retained Earnings from Accumulated Depreciation: Accumulated Depreciation is a contra-asset account that tracks the total depreciation of fixed assets over time, unrelated to profits or equity.
5. Conclude that Retained Earnings is the correct term: Based on the definitions and comparisons, Retained Earnings accurately describe profits reinvested into the business rather than distributed to shareholders.