What Financial Statement Lists Retained Earnings?

Retained earnings is an important financial measure that reflects the accumulated profits of a company that have not been distributed to shareholders as dividends. It represents the portion of a companys net income that is reinvested back into the business rather than distributed to shareholders. The statement that lists retained earnings can vary depending on the accounting system used by a company, but it is typically found in either the balance sheet or the income statement.

The Balance Sheet

The balance sheet is a financial statement that provides a snapshot of a companys financial position at a specific point in time. It shows a companys assets, liabilities, and equity. Retained earnings are listed as a component of the equity section of the balance sheet.

Within the equity section, retained earnings are often presented as a separate line item or aggregated with other components such as contributed capital or additional paid-in capital. The balance sheet provides a summary of the accumulated profits of the company since its inception, minus any dividends that have been paid out to shareholders.

The balance sheet provides useful information for investors and stakeholders to evaluate a companys financial health and stability. It shows the level of reinvestment into the business, which can indicate the companys growth prospects and its ability to generate profits that are retained for future use.

The Income Statement

The income statement, also known as the profit and loss statement or statement of comprehensive income, is a financial statement that summarizes a companys revenues, expenses, gains, and losses over a specific period of time. It provides information about a companys profitability and its ability to generate net income.

While retained earnings are not directly listed on the income statement, they are an essential part of the calculation. The net income derived from the income statement is used to calculate the increase or decrease in retained earnings over the period.

The income statement helps investors and stakeholders understand a companys financial performance by showing the revenue generated from its operations and the expenses incurred to generate that revenue. It also shows other income or expenses that may not be directly related to the core operations of the business.

Conclusion

In conclusion, retained earnings are an important financial measure that represents the accumulated profits of a company that have not been distributed to shareholders. The exact statement that lists retained earnings depends on the accounting system used by a company. It can be found in the balance sheet, where it is listed as a component of the equity section, or it can be indirectly derived from the net income shown in the income statement. Both the balance sheet and the income statement provide valuable insights into a companys financial position and performance, and understanding retained earnings is crucial for assessing a companys reinvestment and growth strategies.

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