Accounting Courses - Balance Sheet Retained Earnings Relation
Watch here video Accounting Courses - Balance Sheet Retained Earnings relation.
Revising concept of Retained Earnings, this is net income generated by the business and not distributed to the shareholders as dividends.
Retained Earnings amount can also be negative, which means that there is an accumulated loss in the business, which was not covered by the shareholders.
Considering topic from the Accounting Courses, i.e. relation between Balance Sheet and Retained Earnings, we start from the Income Statement, where Net Profit for the period is reported. If this amount is not distributed to the shareholders of the business as dividends, it is included into the Balance Sheet under Equity part and named Retained Earnings.
This amount is increased each year by the Net Profit amount from the Income Statement. In case part of Net Profit was distributed to the shareholders as dividends, Retained Earnings in the Balance Sheet are increased only by the amount of net profit after deducting dividends.
