The statement of retained earnings outlines the changes in a company's retained earnings over a specific period. It is prepared after the adjusted trial balance and before the preparation of financial statements.
5 Must Know Facts For Your Next Test
The statement begins with the beginning retained earnings balance.
Net income or loss from the income statement is added to or subtracted from this balance.
Dividends paid to shareholders are then deducted.
The ending retained earnings balance is carried over to the balance sheet.
It helps stakeholders understand how profits are being reinvested in the company versus distributed as dividends.
Review Questions
What components are included in the statement of retained earnings?
How does net income affect the retained earnings?
Where is the ending retained earnings balance reported?
Related terms
Adjusted Trial Balance: A list of all accounts and their balances after adjustments have been made.
Income Statement: A financial statement that shows a company's revenues and expenses over a specific period, resulting in net income or loss.
Dividends: Payments made by a corporation to its shareholder members, typically derived from profits.