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
- Overhead volume variance
The overhead volume variance refers to the difference between normal capacity hours and ...
- Margin of safety ratio
The margin of safety ratio is the margin of safety in dollars divided by actual (or expected) ...
- Advantages of Subsidiary Ledgers
Subsidiary ledgers have several advantages: They show in a single account transactions ...
- Payroll deductions
Payroll deductions refer to deductions form gross earnings to determine the amount of ...
- Ideal & Normal standards
Ideal standards represent optimum levels of performance under prefect operating conditions. Normal ...