As a business owner, it is important to understand the changes in retained earnings and how they affect your financial statements. In this blog post, we will discuss these changes and how they are reported on the balance sheet.
Balance Sheet: The balance sheet reports the value of assets on one side and liabilities, equity, income, and expenses on the other.
The change in retained earnings is reported as a new entry under both Assets (A) for reserves or funds generated by operations that have not yet been applied to a specific purpose; Liabilities (L) if there are any changes in reported deferred taxes; Equity(E), where it shows up when an increase in profit is realized.
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On some occasions, you may see negative numbers here because money has been paid out back to shareholders through dividends or share repurchases.