How to Prepare a Statement of Retained Earnings?
Retained earnings are an important source of capital for businesses and can be used to finance a variety of investments and operations. They are typically reported as a separate line item on the balance sheet and are an important part of a company's financial picture.
International Financial Rereporting standards (IFRS) refers to "Statement of Retained Earnings" (SSE) as "Statement of Changes In Equity".
Preparing a SSE involves several steps, including gathering financial information, calculating beginning retained earnings, and reviewing the previous period's retained earnings balance. Retained earnings can be calculated by subtracting expenses from revenues, calculating dividends, and other comprehensive income. Adjustments can be made to the beginning balance of retained earnings for errors or changes in accounting policies.
The ending balance of retained earnings can be calculated by adding the beginning balance of retained earnings, net income, any adjustments, and other comprehensive income, then subtracting dividends.
Finally, a SSE should be prepared by presenting the beginning balance, net income, dividends, other comprehensive income, adjustments, and ending balance in a clear and concise format. It's important to consult with a qualified accountant or financial professional to ensure proper guidelines and procedures.
Let's prepare the SSE:
Assume Style Zone is a shoe manufacturing company. In 2022, the company's revenues and expenses are $1,000 and $400, respectively & declared cash dividend $200. From the following Balance sheet of Style Zone, retained earnings for the year ended December 31st 2022 can be calculated as follows: