Retained Earnings Statement

Question 1

How is the retained earnings statement used?

Answer 1

it is used to monitor and evaluate a company’s dividend payouts to its shareholders; this helps guide investors who do or don’t want dividend stocks; it also helps creditors know whether the company will have the money to pay their debts.

Question 2

How do you prepare a retained earnings statement?

Answer 2

1) Heading (Name of company, name of report, date of report)
2) List the retained earnings balance at the beginning of the period obtained from the balance sheet
3) Add net income obtained from the income statement.
4) Subtract any dividends declared during the period. Double underline the total *which should equal retained earnings at the end of the period as reported on the balance sheet.

Question 3

What is a “retained earnings statement”?

Answer 3

Retained earnings is income earned by the company but not paid out in the form of dividends;
The retained earnings statement summarizes and explains the changes in retained earnings during the accounting period.
*some companies do stockholders’ equity statements instead

Question 4

What are two ways owners of a company contribute capital?

Answer 4

Directly through the purchase of common stock.
Indirectly by the company retaining net income rather than paying it out in the form of dividends.