Home / ACCOUNTS / Generally Cause Retained Earnings to Increase or Decrease + Formula

Generally Cause Retained Earnings to Increase or Decrease + Formula

Generally Cause Retained Earnings to Increase or Decrease and its formula are as follows

Retained earning is the portion of total equity that is not paid as a dividend, but retained for further investment to earn profit.

It is comes in the credit side of the balance sheet. It shows the financial health of the firm. Growing company normally avoids to give dividend to its shareholders, so that they can use R.E for further investment in the business and grow their business.

Generally Cause Retained Earnings to Increase or Decrease + Formula

Generally Cause Retained Earnings to Increase or Decrease + Formula

Business also kept R.E to cover up their future losses. Capital intensive industries and growing industries tends to retain more of their R.E as compared to other industries.

Formula

Beginning retain earning + net income/loss – cash dividend – stock dividend

When R.E debit (decreases)

  • Net loss
  • Overstatement of net income
  • Cash and stock dividend
  • Sale of treasury stock

When R.E credit (increases)

  • Net income
  • Understatement of net income.

About Zain Shahid

Leave a Reply

Your email address will not be published. Required fields are marked *

Watch Dragon ball super