Statement of Retained Earnings
Author | Vern Krishna |
Pages | 261-269 |
Chapter 11: Statement of Retained
Earnings
A. OVERVIEW
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 Decit,”
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 specic assets. Retained earnings is simply
a balancing account that derives from the fundamental balance sheet
equation:
A = L + E
E (Equity) has two components:
E = Capital + Retained Earnings.
Retained earnings is the dierence between assets and liabilities and
capital:
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