Retained earnings are part of the business’s profits that means the amount of income left over the business. Retained earnings go under the shareholder’s equality of your business. Many parts of the accounting cycle are there, but the financial statement is an important part of this accounting cycle. This statement is used to evaluate a company’s progress and also estimate the future plan of your business performance. There are some financial statements that are generally accepted principles in accounts. It helps to publish the company’s financial statement in its accounting period.
These accounts are,
• Income statement,
• Statement of retained earnings,
• Statement of cash flows, and
• Balance sheet
These statements are done in the exact order. You need to do things using these three statements.
Income statement
First, You have evaluated the income statement, secondly statement of retained earnings, and finally the balance sheet. The income statement is used to calculate the net income and net loss of your business. The net income makes money during the accounting period. The net loss is the opposite of net income.
Retained earnings statement
The next one is the retained earnings statement which allows you to take a look at changes of retained earnings over the period. You can check the increment and decrement of retained earnings by the statement of net income and net loss. This is the reason to be done the net income before the statement of retained earnings to be done. Another process of dividends account, it will help you to make a profit to your company that is being paid to stockholders of your company. This dividends statement starts with the balance of beginning retained earnings of your company at the start of the period. If you would like to know more about retained earnings, you can visit here https://alphascala.com/.
Balance sheet
The last one is the balance sheet, it shows the complete accounts for your company. This statement for permanent accounts, so the temporary accounts are closed. Companies are using the temporary accounts for a short time period, once the balance sheet is updated, it will be reset to zero balance. Expenses, revenues, and dividends are temporary accounts in your business. Cash accounts receivable, and accounts payable are permanent accounts. The balance sheet varies this temporary and permanent account into two sections. These sections are helpful to check the totals. After founding the total assets, it will be compared with total liabilities and equity. These totals should be equal, if it is not equal, then there is an issue with the account totals or calculations that were done.
These three financial statements are more important in the business world. All the company has experienced losses and gains and it distributes more dividends than it has in the retained earnings balance. The retained earning balance should be reported in the stockholder’s equity section which means it should be reported in the balance sheet of the company. This process could generate growth for your company and it helps to achieve even more earnings in the future.