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
- Just-in-time (JIT) inventory method
Just-in-time (JIT) inventory method is an inventory system in which companies manufacture ...
- Cost center
A cost center refers to a responsibility center that incurs costs (and expenses) but does ...
- The Benefit of Budgeting
The primary benefit of budgeting are: It requires all levels of management to a plan ...
- Cost of goods manufactured
Cost of goods manufactured refers to the total cost of work in process less the cost of ...
- Acid test ratio
Acid test ratio is a measure of a firm’s ability to pay current debts from its most ...