Negative Retained Earnings

As we all know that retained earnings are the earnings that are left with the business after paying dividends to all the share holders from the profit earned by the business. The account of the retained earnings is called equity account. However this is not always in the case of profit as if a business goes in loss the amount of loss occurred is also counted in the retained earnings. In the case of loss if the amount of the loss increased by the amount of profit that was recorded in retained earnings before the occurrence of the loss and is recorded as the beginning of the retained earnings then the retained earnings are known as negative retained earnings.

For a company that is considered to be earning profit the situation of negative retained earnings can be arrived if the aggregate of the dividends paid to the share holders of the company exceeds the total amount of the profit earned by the company since its foundation. Negative retained earnings are also recorded in the retrained earnings account but are considered as a debit rather than the credit. In the balance sheet of the company a name given to the negative retained earnings is called as accumulated deficit.

If a company is experiencing negative retained earnings one reason of it can be the bankruptcy of the company as it indicates that the company is in long term series of loan.

Other Related Accounting Articles:

• Earned Capital
• Explanation of Statement of Retained Earnings
• Income Summary Account
• The Closing Procedure in Accounting
• Accumulated Fund
• Accrued Dividend
• Negative Equity
• Different Types of Dividends
• Accounting Earnings
• What is a Financial Leverage?