The balance sheet is a static view of the financial
situation of the business. It changes from period
to period as the business makes or loses money.
Retained earnings is an accountant's term used
to refer to earnings retained by the business
and not distributed to shareholders as dividends.
(Lawyers call this earned surplus.) Earnings kept
in the business are accumulated from accounting
period to accounting period.
An accumulated retained earnings statement shows
increases and decreases in the corporation's retained
earnings (earned surplus) during the period covered
by the income statement it accompanies. An accumulated
retained earnings statement showing changes during
a calendar year would show
- the amount of accumulated retained earnings
(earned surplus) on January 1
- any additions to accumulated retained earnings
arising from profits during the year
- any decreases arising from dividends paid
to shareholders, or from transfers to capital
surplus or stated capital, and
- the amount of accumulated retained earnings
on December 31.
The amount of accumulated retained earnings on
December 31 would also appear in the accumulated
retained earnings (earned surplus) account on
the balance sheet. |
3.2.2 Balance Sheet Analysis
