Accounting Courses – Balance Sheet And Retained Earnings

Accounting Courses – Balance Sheet And Retained Earnings

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Accounting classes are aimed for those who would like to learn fundamental or intermediate accounting. Among the topics that is covered in the following paragraphs is really a relation between Balance Sheet and Retained Earnings (RE) , covering idea of accrued profit or loss and how it’s associated with among the primary fiscal reports. Also in the following paragraphs you are able to explore practical illustration of this relation.

Concepts

Thinking about the idea of Retained Earnings, it’s understood as profit accrued through the business beginning from the operations and never given to the shareholders as dividends. This amount may also be negative, when the business has accrued loss that was not taught in investments in the shareholders.

Retained Earnings is part of Equity within the Balance Sheet along the side of Liabilities and Shareholders’ Equity. To calculate this balance starting in the Earnings Statement, where Internet Profit for that period is reported and if it’s not given to the shareholders as dividends, this amount increases RE balance. If within the Earnings Statement there exists a negative amount (i.e. internet loss) it decreases Retained Earnings amount within the Balance Sheet.

In situation area of the Internet Profit for that period is shipped as dividends towards the shareholders, only remaining amount increases RE.

Practical Example

To show the above mentioned relation, below there’s a simplified Earnings Statement for that newbie of economic operations:

Revenue______________$15,000

Expenses______________$9,560

Internet Profit______________$5,440

Internet Profit amounting to $5,440 is incorporated in to the Balance Sheet by year finish, that is presented below:

Assets______________$32000

Liabilities & Shareholders’ Equity

Liabilities___________$6,560

Shareholders’ Equity

Share Capital____________$20000

Retained Earnings________$5,440

Total Shareholders Equity__$25,440

Total Liabilities & Equity__$32,000

In the above you can observe that the quantity of Internet Profit ($5,440) since it wasn’t distributed as dividends is incorporated in to the RE caption under Equity within the Balance Sheet.

Steve Darwin

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