|This article does not cite any references or sources. (June 2012)|
The Statement of Retained Earnings (and similarly the 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) are basic financial statements.
The statements explain the changes in a company's retained earnings over the reporting period. They break down changes in the owners' interest in the organization, and in the application of retained profit or surplus from one accounting period to the next. Line items typically include profits or losses from operations, dividends paid, issue or redemption of stock, and any other items charged or credited to retained earnings.
Owners' Equity = Assets − Liabilities
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.
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.
Retained Earnings are part of the Statement of Changes in Equity. The general equation can be expressed as following:
This equation is necessary to use to find the Profit Before Tax to use in the Cash Flow Statement under Operating Actvities when using the indirect method. This is used whenever a comprehensive income statement is not given but only the balance sheet is given.
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)
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:
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.
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