As we reported to AIPB members in their monthly technical briefing, The General Ledger newsletter (org/general_ledger.html), owners of an S or C corp keep a close eye on their Retained Earnings account (Stockholders' Equity section of the balance sheet) because it indicates the amount available for distribution to shareholders. But one may have 90% in Contributed Capital and 10% in Retained Earnings, suggesting that the company's stockholders have contributed most of the stockholders' equity.
For example, two companies might have the same total Stockholders' Equity.
Stockholders' equity has two primary components: Contributed Capital (Capital Stock) and Retained Earnings, both of which have a normal credit balance. A., both of Perdue School of Business, Salisbury University (MD), created the following report.If the other has 10% in Contributed Capital and 90% in Retained Earnings, it would indicate that most of its stockholders' equity came from retained profits.at year end results in a debit balance in Income Summary because expenses (debit balance) are greater than revenues (credit balance).The debit balance in Income Summary is transferred to Retained Earnings, as follows: (corrections of errors after the books are closed) that correct overstatement of the prior year's income are corrected with a debit to Retained Earnings.
For example, if after the books are closed you found an expense from last year that was debited to an asset account, the correction must reduce the balance in Retained Earnings as follows: are distributions of noncash assets, such as stocks or bonds of other companies that the corporation owns.Revalue the stock or bond to its fair market value (FMV), recognize any gain or loss, then distribute to shareholders and record as follows: You can distribute Treasury Stock (shares previously issued and bought back), or newly issued stock.Larger stock dividends, over 25% of outstanding shares, are computed at par value x number of shares, then debited to Retained Earnings and credited to Common Stock.Distribution of liquidating dividends (distribution of all stock among shareholders) is beyond the scope of this article.that results in the prior year's income being overstated is corrected with a debit to Retained Earnings.For example, say that your firm changes from FIFO to LIFO for book and tax purposes.