Which of the following affects retained earnings directly?

Retained earnings represent the cumulative amount of a company's net income that has been retained in the business rather than distributed as dividends to shareholders. The primary factor that affects retained earnings directly is net income or loss. When a company generates net income, this amount increases retained earnings because it indicates a profit that can be reinvested. Conversely, if there is a net loss, it reduces retained earnings, reflecting a decrease in the total equity available to shareholders.

Sales revenue, while crucial for generating net income, does not directly change retained earnings. It is the net income after taking into account all expenses, including operational costs and asset purchases, that ultimately gets added to or deducted from retained earnings. Operational costs and asset purchases contribute to determining the net income but are not directly reflected in the retained earnings figure. Thus, net income or loss is the key determinant in impacting retained earnings directly.