The Beginning Balance Of Retained Earnings Will Be Greater Than The Ending Balance If:

The correct answer of this multiple choice question is B, as the amount of Dividend paid is more than the net income for the period, so the opening retained earnings is greater than ending retained earnings.

Actually, Retained Earnings (RE), which is retained in the business, includes beginning retained earnings plus / minus net income / net loss minus dividend paid.

Example:

From the ABC Company’s statement of retained earnings, we have the following information as shown below:

                                                      ABC Company

                                          Statement Of Retained Earnings

                                                         For The Period

                                                                   $

Opening RE                                            5000

Net Income                                             2000

Dividend Paid                                        (3000)

Ending RE (Balance Figure)                   4000

From the above example, it is clear that Opening RE is greater than Ending RE by $1000 as dividend paid of $3000 is more than the net income of $2000.

In our above example, if we assume that net income is greater than dividend paid i.e., net income is $4000 and dividend paid is $1000, then Beginning RE is less than the losing RE by $3000 as shown below:

                                                                ABC Company

                                                  Statement Of Retained Earnings

                                                              For The Period

                                                                    $

Opening RE                                              5000

Net Income                                               4000

Dividend Paid                                          (1000)

Ending RE (Balance Figure)                     8000

So, the greater the net income for the period and the greater the ending balance of Retained earnings provided that the amount of dividend paid to shareholders / stockholders is less than the net income.

The option A is wrong choice as if the Revenues are greater than expenses then the result is net income and if net income is also greater than dividend paid then ending balance of RE is greater than opening balance.

The statement shown in C option is also incorrect as explained above that if net income / net profit for the period is greater than dividend paid, than the balance in Beginning RE is smaller than the balance in Ending RE.

The option D is incorrect choice here as issuance of additional shares to shareholders increases the equity account but it does not directly affect retained earnings as RE is directly affected by net income / net loss and dividend paid to shareholders.