Which of the following would be classified as a stockholders' equity account?

• A. Accounts Payable
• B. Prepaid Expenses
• C. Inventory
• D. Retained Earnings

Answer: (D)

Verified step by step guidance

1. Understand the concept of stockholders' equity: Stockholders' equity represents the owners' claim to the assets of a company after all liabilities have been deducted. It includes accounts such as common stock, additional paid-in capital, retained earnings, and treasury stock.
2. Review the provided options: Accounts Payable, Prepaid Expenses, Inventory, and Retained Earnings. Determine which of these fits the definition of stockholders' equity.
3. Analyze each option: Accounts Payable is a liability account, representing amounts owed to creditors. Prepaid Expenses are an asset account, representing payments made in advance for future expenses. Inventory is also an asset account, representing goods available for sale.
4. Focus on Retained Earnings: Retained Earnings is part of stockholders' equity. It represents the cumulative net income of the company that has been retained (not distributed as dividends) and reinvested in the business.
5. Conclude that Retained Earnings is the correct answer because it is classified as a stockholders' equity account, while the other options are either liabilities or assets.