Statement of retained earnings
| Accountancy | |
|---|---|
| Key concepts | |
| Accountant · Bookkeeping · Cash and accrual basis · Constant Item Purchasing Power Accounting · Cost of goods sold · Debits and credits · Double-entry system · Fair value accounting · FIFO & LIFO · GAAP / International Financial Reporting Standards · General ledger · Historical cost · Matching principle · Revenue recognition · Trial balance | |
| Fields of accounting | |
| Cost · Financial · Forensic · Fund · Management · Tax | |
| Financial statements | |
| Statement of Financial Position · Statement of cash flows · Statement of changes in equity · Statement of comprehensive income · Notes · MD&A | |
| Auditing | |
| Auditor's report · Financial audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act | |
| Accounting qualifications | |
| CIMA · ACCA · CA · CGA · CIMA · CMA · CPA | |
The Statement of Retained Earnings (also known as Equity Statement, Statement of Owner's Equity for a single proprietorship, Statement of Partner's Equity for partnership, and Statement of Retained Earnings and Stockholders' Equity for corporation)[1] is one of the basic financial statements as per Generally Accepted Accounting Principles, and it explains the changes in a 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.
Contents |
[edit] Requirements of the U.S. GAAP
A retained earnings statement is required by the U.S. Generally Accepted Accounting Principles (U.S. 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.
Therefore, the statement of retained earnings uses information from the income statement and provides information to the balance sheet.
Retained earnings are part of the balance sheet (another basic financial statement) under "stockholders equity (shareholders' 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 equation can be expressed as following:
- Ending Retained Earnings = Beginning Retained Earnings - Dividends Paid + Net Income
[edit] Requirements of IFRS
IAS 1 requires a business entity to present a separate Statement of Changes in Equity (SOCE) as one of the components of financial statements.
The statement shall show: (IAS1.106)
- total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
- the effects of retrospective application, when applicable, for each component
- reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
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- profit or loss
- each item of other comprehensive income
- transactions with owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control
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However, the amount of dividends recognised as distributions, and the related amount per share, may be presented in the notes instead of presenting in the statement of changes in equity. (IAS1.107)
For Small and Medium-size Enterprises (SMEs), the Statement of Changes in Equity should show all changes in equity including:
- total comprehensive income
- owners' investments
- dividends
- owners' withdrawals of capital
- treasury share transactions
They can omit the statement of changes in equity if the entity has no owner investments or withdrawals other than dividends, and elects to present a combined statement of comprehensive income and retained earnings.
[edit] See also
[edit] References
- ^ San Juan, Donatila Agtarap (2007). Fundamentals of Accounting: Basic Accounting Principles Simplified for Accounting Students. AuthorHouse. p. 119. ISBN 1-4343-2299-8, ISBN 978-1-4343-2299-9.
