Davis Company was started on January 1, 2012. During the month of January, Davis earned $4,600 of revenue and incurred $3,000 of expense. Davis closes its books on December 31 of each year. Required a. Determine the balance in the Retained Earnings account as of January 31, 2012. b. Comment on whether retained earnings is an element of financial statements or an account. c. What happens to the Retained Earnings account at the time expenses are recognized?

I know part a equals zero. but can't figure out parts b and c.

any help would be much appreciated

a. To determine the balance in the Retained Earnings account as of January 31, 2012, we need to consider the net income or net loss for the month of January. Net income is calculated by subtracting expenses from revenue.

Net Income = Revenue - Expenses

In this case, the revenue earned in January is $4,600 and the expenses incurred are $3,000. Therefore,

Net Income = $4,600 - $3,000
= $1,600

To find the retained earnings balance as of January 31, 2012, we need to add the net income to the beginning balance of retained earnings. Since the Davis Company was started on January 1, 2012, there is no prior retained earnings balance. Hence,

Retained Earnings Balance as of January 31, 2012 = Net Income
= $1,600

b. Retained earnings is not an element of financial statements but rather an account within the financial statements. Financial statements include the income statement, balance sheet, and statement of cash flows. These statements report the financial performance, financial position, and cash flows of a company, respectively. Retained earnings, on the other hand, is an account on the balance sheet that represents the cumulative net income or net loss of a company over its lifespan.

c. When expenses are recognized, they are deducted from the revenue to calculate the net income or net loss for a specific period. This net income (or net loss) directly impacts the retained earnings account. If there is a positive net income, it will increase the retained earnings balance, and if there is a net loss, it will decrease the retained earnings balance. In simple terms, when expenses are recognized, they reduce the overall profit, which in turn reduces the retained earnings.