Statement of retained earnings

From Wikipedia, the free encyclopedia

The Statement of Retained Earnings also known as "Statement of Owners' Equity" and "Statement of Net Assets" for non-profit organizations, is one of the basic financial statements as per Generally Accepted Accounting Principles, and it explains the changes in company's retained earnings over the reporting period. It breaks down changes affecting the account, such as profits or losses from operations, dividends paid, and any other items charged or credited to retained earnings. A retained earnings statement is required by Generally Accepted Accounting Principles (GAAP) whenever comparative balance sheets and income statements are presented. It may appear in the balance sheet, in a combined Income Statement and Changes in Retained Earnings Statement, or as a separate schedule.

Retained earnings are part of the balance sheet (another basic financial statement) under "stockholders equity", and is mostly affected by net income earned during a period of time by the company less any dividends paid to the company's owners/stockholders. The retained earnings account on the balance sheet is said to represent an "accumulation of earnings" since net profits and losses are added/subtracted from the account from period to period.

The general formula can be expressed as following:

Ending Retained Earnings = Beginning Retained Earnings + Investments - Dividends Paid + Net Income

Therefore, the Statement of Retained Earnings uses information from the Income statement and provides information to the Balance Sheet.