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Statement of Retained Earnings
Definition of the Statement of Retained Earnings
The statement of retained earnings reconciles changes in the retained earnings accounting during a reporting period. The statement begins with the beginning balance in the retained earnings account, and then adds or subtracts such items as profits and dividend payments to arrive at the ending retained earnings balance. The general calculation structure of the statement is:
Beginning retained earnings + Net income - Dividends = Ending retained earnings
The statement of retained earnings is most commonly presented as a separate statement, but can also be appended to the bottom of another financial statement.
Example of the Statement of Retained Earnings
The following example shows the most simplified version of a statement of retained earnings:
Arnold Construction Company
Statement of Retained Earnings
for the year ended 12/31x2
| Retained earnings at December 31, 20X1 | $150,000 |
| Net income for the year ended December 31, 20X2 | 40,000 |
| Dividends paid to shareholders | -25,000 |
| Retained earnings at December 31, 20X2 | $165,000 |
It is also possible to provide a greatly expanded version of the statement of retained earnings that discloses the various elements of retained earnings. For example, it could separately identify the par value of common stock, additional paid-in capital, retained earnings, and treasury stock, with all of these elements then rolling up into the totals just noted in the last example. Here is a sample of a more expanded statement of retained earnings:
Arnold Construction Company
Statement of Retained Earnings
for the year ended 12/31x2
| Common Stock, $1 Par |
Additional Paid-In Capital |
Retained Earnings |
Total Shareholders’ Equity |
|
| Retained earnings at December 31, 20X1 | $10,000 | $40,000 | $100,000 | $150,000 |
| Net income for the year ended December 31, 20X2 | 40,000 | 40,000 | ||
| Dividends paid to shareholders | -25,000 | -25,000 | ||
| Retained earnings at December 31, 20X2 | $10,000 | $40,000 | $115,000 | $165,000 |
The statement is most commonly used when issuing financial statements to entities outside of a business, such as investors and lenders. When financial statements are developed strictly for internal use, this statement is usually not included, on the grounds that it is not needed from an operational perspective.
Similar Terms
The statement of retained earnings is also known as the retained earnings statement, the statement of shareholders' equity, the statement of owners' equity, and the equity statement.
Related Topics
What are negative retained earnings?
What are retained earnings?
What is the retained earnings formula?
