WFU Law School
Law & Valuation
3.2.2 Balance Sheet Analysis

3.2.3 Accumulated Retained Earnings Statement

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

©2003 Professor Alan R. Palmiter

This page was last updated on: March 21, 2004