Q32Q - Intermediate Accounting (Kieso)

Question

Question: What major types of items are reported in the retained earnings statement?

Step-by-Step Solution

Answer

The opening balances of retained earnings, profit or loss of the last accounting period, and dividends payment are reported in the retained earnings statement.

Step 1: Meaning of Retained Earnings

The term retained earnings refers to the amount of money kept in the business entity after making the payment of all associated costs such as dividends and income taxes.

Step 2:Items reported in the retained earnings statement

• Opening balances of retained earnings: The opening balances of retained earnings reflect the amount of previous years’ retained earnings.

• Current year’s income or loss: The current year’s profits are added, or losses are subtracted from the opening balances of the retained earnings.

• Dividends: Further cash and stock dividends are subtracted to obtain the closing balances of the retained earnings statement.