The
Definition Of

Retained earnings statement

The retained earnings statement is a financial statement that shows the changes in retained earnings during the year. The company prepares the statement from the Retained Earnings account. The Illustration below shows (in account form) transactions that affect retained earnings.

                                                   Retained earnings

1.      Net loss                                                                 

2.      Prior period adjustments for                                                       

3.      Cash dividends and stock dividends

4.      Some  disposals of treasury stock

1.      Net income

2.       Prior period adjustment for understatement of net income

As indicated, net income increases retained earnings, and a net loss decreases retained earnings. Prior period adjustments may either increases or decreases retained earnings. Both cash dividends and stock dividends decrease retained earnings. The circumstances under which treasury stock transactions decreases retained earnings.

Share it:

More from this Section

  • Period costs
    Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product.
  • Management by exception
    Management by exception means that top management’s review of a budget report is focused either entirely or primarily on differences between actual results and planned objectives.
  • Cost reconciliation schedule
    Cost reconciliation schedule is a schedule that shows that the total costs accounted for equal the total costs to be accounted for equal the total costs to be accounted for.
  • Ideal & Normal standards
    Ideal standards represent optimum levels of performance under prefect operating conditions. Normal standards represent efficient levels of performance...
  • Annuities
    In addition to receiving the face value of a bond at maturity, an investor also receives periodic interest payments over the life of the bonds. These periodic payments...
  • Gross profit method
    Gross profit method is a method for estimating the cost of the ending inventory by applying a gross profit rate to net sales and subtracting...
  • Obsolescence
    Obsolescence is the process of becoming out of dates before the asset physically wears out. Revenue-producing ability may also decline because of obsolescence.