Examples of Retained Earnings Statement
Statement of retained earnings shows how the retained earnings have changed during the financial period. This financial statement provides the beginning balance of retained earnings, ending balance, and other information required for reconciliation. Let’s look at some examples of Statement of Retained EarningsStatement Of Retained EarningsThe statement of retained earnings is the financial record that reconciles the retained earnings fluctuation caused by the net income and dividend payout. It also shows the opening balance and closing balance of the retained earnings.. We will try to address as many situations/variations in these examples, but please note that these situations are not fully exhaustive, and you might encounter ones that vary from those given in the below examples. However, you must remember that the core reasoning and concept behind the statement of retained earnings remain the same.
Top 4 Real-Life Examples of Statement of Retained Earnings
Below are the examples of statement of retained earnings.
Example #1 – KMP Limited
KMP Limited reported a Net Income of $ 84000 for the year ended December 31, 20X8. Retained Earnings on January 1, 20X8 were $ 47000. The company did not pay any dividendsDividendsDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company. in the year 20X8.
Therefore, the statement of retained earnings will be –
Retained Earnings on December 31 20X8 = Retained Earnings on January 1, 20X8 + Net Income – Dividends Paid
= 47000 + 84000 – 0
= $ 131,000
Example #2 – ChocoZa
You started a homemade chocolate company called ChocoZa in the year 20X6. The Net Income (Net LossNet Income (Net LossNet loss or net operating loss refers to the excess of the expenses incurred over the income generated in a given accounting period. It is evaluated as the difference between revenues and expenses and recorded as a liability in the balance sheet.) and dividends paid are as per below for the years 20X6-20X9.
|Year||Net Income (Net Loss)||Dividends Declared|
The Retained EarningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company. (Accumulated Deficit) for all the four years is calculated as per below:
Retained Earnings for Year 20X6
- Year 20X6: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = 0 – 90000 – 0
- = -90,000
We have an accumulated deficit of -90,000 in the year 20X6. (Please note that negative result for retained earnings implies Accumulated Deficit)
Retained Earnings for Year 20X7
- Year 20X7: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = -90000 – 40000 – 0
- = -13000
We have an accumulated deficit of -130,000 in the year 20X7
Retained Earnings for Year 20X8
- Year 20X8: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = -130,000 + 135000 – 0
- = 5000
We have retained earnings of $ 5000 in the year 20X8
Retained Earnings for Year 20X9
- Year 20X9: Retained Earnings (Accumulated Deficit)= Beginning Retained Earnings + Net Income (Net Loss) – Dividends
- = 5000 + 210000 – 30000
- = 185000
Thus, we have retained earnings of $ 185,00 in the year 20X9
The retained earnings and accumulated depreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet. are summarized in the below table:
Example #3 – Dee Private Limited
* This example discusses the scenario in which the company pays a cash dividend
Dee Private Limited had a net income of $ 260,000 for the year ended December 31, 20X8. Also, retained earnings at the beginning of the same year were $ 70,000. The company has 10000 shares of its common stock outstandingStock OutstandingOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.. The company pays a dividend of $1 on each of its shares.
Therefore, retained earnings can be calculated as –
- Retained Earnings on December 31 20X8 = Retained Earnings at the beginning of year + Net Income – Cash DividendsCash DividendsCash dividend is that portion of profit which is declared by the board of directors to be paid as dividends to the shareholders of the company in return to their investments done in the company. Such a dividend payment liability is then discharged by paying cash or through bank transfer. Paid
- = 260000 + 70000 – (10000 * $1)
- = 260000 + 70000 – 10000
- = 320000
Example #4 – Supreme Ltd
* This example discusses the scenario in which the company pays a stock dividend
Supreme Ltd had retained earnings of $ 38000 on January 1, 20X5. The company reported net income of $ 164000 for the year. The company, looking at good net income for the year, decided to pay a stock dividend of 10% on 10000 common shares when the shares were trading at $ 14 per share in the market.
Therefore, retained earnings can be calculated as –
- Retained Earnings on December 31 20X5 = Retained Earnings on January 1, 20X5 + Net Income – Stock Dividends Paid
- = 38000 + 164000 – (0.10 * 10000 * 14)
- = 38000 + 164000 -14000
- = $ 188,000
We must remember that retained earnings help us gauge the amount of net income that is left with a company after dividends (cash/stock) are paid to the shareholders. This understanding itself would make the interpretation and presentation of the statement of retained earnings very intuitive for us.
This article has been a guide to the Statement of Retained Earnings Examples. Here we discuss the top 4 examples of the Statement of Retained Earnings which will clarify your understanding of the Statement of Retained Earnings and should enable us to calculate and interpret the Statement in different scenarios in real life. You can learn more about accounting from the following –