Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
A. Retained earnings
B. Common stock
C. Accumulated depreciation
D. Paid-in capital
The account that represents the cumulative earnings of the firm since its formation, minus dividends paid, is Retained earnings (option A).
To determine the correct answer, you need to understand the different types of accounts involved:
1. Retained earnings: This account represents the accumulated profits of a company that have been retained in the business rather than distributed to shareholders as dividends. It increases whenever the company generates a profit and decreases when dividends are paid out.
2. Common stock: This account represents the initial investment made by shareholders when they purchase common stock from the company. It does not reflect the cumulative earnings of the firm.
3. Accumulated depreciation: This account is used to record the depreciation expense of long-lived assets (such as buildings, vehicles, or equipment) over their useful lives. It is not directly related to the cumulative earnings of the firm.
4. Paid-in capital: This account represents the capital contributed by shareholders to the company through equity investments, such as purchasing shares or contributing additional capital. It does not reflect the cumulative earnings of the firm.
Therefore, the correct answer to the question is option A: Retained earnings.