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.
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.
More from this Section
- Times interest earned ratio
Times interest earned ratio is a solvency measure that indicates a company’s ability ...
- Footing & cross-footing
Totaling the columns of a journal and proving the equality of the totals is called footing ...
- Public accounting
Public accounting is an area of accounting in which the accountant offers expert service ...
- Fair value
Fair value is the amount for which a security could be sold in a normal market. Other ...
- Useful life
Useful life is an estimate of the expected productive life, also called service life, ...