Definition

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

  • Efficient Auditing
    Efficient Auditing is generally conducted in case of public enterprises to see whether ...
  • Retail Inventory Method
    Retail inventory method is a method for estimating inventories where companies compute ...
  • Error of omission
    An error of omission is one where a transaction has not been recorded in the books ...
  • Transactions
    Transactions (business transactions) are a business’s economic events recorded by accountants. ...
  • Acid test ratio
    Acid test ratio is a measure of a firm’s ability to pay current debts from its most ...