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:  Cite

More from this Section

  • Percentage-of-receivables
    Under the percentage-of-receivables basis, management estimates what percentage of receivables ...
  • Bank reconciliation
    Bank reconciliation is the process of comparing the bank’s balance of an account with ...
  • Journalizing
    Entering transaction data in the journal is known as journalizing. Companies make separate ...
  • Matching principle
    This method of expense recognition is referred to as the Matching principle that companies ...
  • Salvage value
    Salvage value is an estimate of the asset’s value ate the end of its useful life. This ...