Retained Earnings

Retained Earnings

Explain the difference between retained earnings and Other Comprehensive Incomeretained earnings is part of the equity.

Retained earnings is a term used in accounting which is referred to that part of the net income which corporations retain instead of distributing to the owners in the form of dividends. Retaining means keeping the income rather than distributing it. Retaining is not only in cases of profits. It is also applicable when corporations incur losses. When a loss is incurred by a corporation, then the loss is retained by the corporation. This is referred to as retained losses. It is also known as accumulated deficit or accumulated losses. Retained earnings and retained losses are collective with each growing year in which losses are offset by earnings.

It is important to note that retained earnings of a corporation or a company is that income which is not distributed to the stockholders in the form of dividend or in any other form. Retained earnings are part of equity. Net income increases retained earnings or is decreased if the company or corporation incurs a net loss. Dividends also decrease retained earnings.

When it comes to the balance sheet, retained earnings are reported or included in the shareholders' equity. Companies or corporations that have incurred net accumulated deficits would record these losses in the negative shareholder' equity. They are recorded in the shareholders deficit. Depending on loss or profit, the statement of retained losses or statement of retained earnings is presented when preparing the complete report of retained earnings.

The preparation of the second financial statement involves the statement of retained earnings. This statement is prepared before the balance sheet but after the income statement. The concept of retained earnings is used to explain the changes that have occurred in retained earnings from the net ...