The options are Retained Earning OR long-term debt OR Common Stock OR Preferred stock.
I’m confused with retained earning and long-term debt. Please help me.
1 Answer
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These type of things are very easy to get confused about.
These are both business terms. Retained earnings are the earnings of a company since the company started doing business. The profits and losses keep going into this “basket” called retained earnings. Retained earnings increase when the company makes profits and decreased when the company looses money.
Debt is when you owe money to someone. Business debt can be short-term or long-term. If the business takes out a loan that will not be repaid within one year that is generally considered long-term.
The answer to your question is long-term debt because for a business the interest on debt is generally tax deductible.
I hope that this helps.
