Net income increases which account in retained earnings?

• A. Retained Earnings
• B. Common Stock
• C. Additional Paid-in Capital
• D. Treasury Stock

Answer: (A)

Net income increases Retained Earnings. Earnings add to the profits that the company keeps rather than distributes, and those accumulated profits are recorded in Retained Earnings, a component of stockholders’ equity. So when a period shows positive net income, Retained Earnings rises by that amount (assuming no dividends are paid). The other accounts reflect capital raised from owners or costs of buying back shares: Common Stock and Additional Paid-in Capital come from issuing shares, not from earnings, and Treasury Stock represents shares the company has repurchased, which reduces equity rather than increasing it. For example, if net income is 50,000, Retained Earnings grows by 50,000.