Statement of Retained Earnings

AuthorVern Krishna
Chapter 11: Statement of Retained
e equity portion of a corporate balance sheet comprises two princi-
pal components: share capital and retained earnings. A corporation’s
retained earnings are its accumulated income, net of dividends and
other distributions to shareholders. If the balance is negative because
of accumulated losses, the account is called “Accumulated Decit,”
which appears in the equity segment of the balance sheet.
ere are very few transactions recorded directly into the retained
earnings account. Typically, the most common entry is a transfer of
the corporation’s net income for the year from the income summary
account to the retained earnings.
e rst important point to note is that retained earnings do not
represent cash or any other specic assets. Retained earnings is simply
a balancing account that derives from the fundamental balance sheet
A = L + E
E (Equity) has two components:
E = Capital + Retained Earnings.
Retained earnings is the dierence between assets and liabilities and

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