Explanation of Statement of Retained Earnings

Statement of retained earnings is also a financial statement like income statement and cash flow statement. This statement records the changes in the retained earnings of a company for a specific period of time. As we all know that retained earnings are the earnings of a company that are used to repay the debt of the company and also used as a reinvestment tool by the company. All the changes in the retained earnings for that period are stored and presented in the form of this statement. In order to calculate the net or absolute retained earnings of a company you need to reconcile the beginning and ending retained earnings of that company. The beginning and ending retained earnings can be calculated by adding or subtracting other financial figures of the company such as profits and losses and dividends that are paid to the shareholders of the company. The statement of retained earnings is prepared to satisfy the shareholders and creditors of the company.

Here is shown the formula of the retained earnings that is

Retained Earnings = Beginning Retained Earnings + (Net Income – Dividend paid to shareholders)

Sometimes statement of retained earnings is published separately but on the other times it can be infused in the balance sheet and income statement of the company. Other names that are given in accounting to this statement are statement of owner’s equity, statement of shareholder equity or simple equity statement. A retained earnings statement is such statement that acts as a bridge between the income statement and the balance sheet. This statement uses information from the income statement of the business and after compilation acts as a source of information for balance sheet.



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