The term retained earnings means the accumlated excees of earnings over losses and dividends. The statement of retained earnings is generally included with almost any set of financial statements although it is not concidered to be one of the major financial statements.
A typical statement if retained earnings starts with the opening balances of retained earnings, the net income for the period as an addition, the dividends as a deduction, and ends with the closing balances of retained earnings.
The statement may be prepared and shown on a seperate sheet or included at the bottom of the income statement. The balance shown by the income statement is transferred to the balances through the statement of retained earnings after making necessary appropriations.
This statement thus links the income statement to the retained earnings item on the balnces sheet. This statement can be prapared "T" shape also when it is called as "profit and loss appropriation account". Illustration "F" gives the statementof retained earnings.
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