Liquidating dividends effect on retained earnings

07-Sep-2020 01:48

The retained earnings of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period.

At the end of that period, the net income (or net loss) at that point is transferred from the Profit and Loss Account to the retained earnings account.

Due to the nature of double-entry accrual accounting, retained earnings do not represent surplus cash available to a company.

It also represents the residual value of assets minus liabilities.The balance sheet displays the company’s total assets, and how these assets are financed, through either debt or equity.Assets = Liabilities Equity Share capital (shareholders' capital, equity capital, contributed capital or paid-in capital) is the amount invested by a company’s shareholders for use in the business.When total assets are greater than total liabilities, stockholders have a positive equity (positive book value).

Conversely, when total liabilities are greater than total assets, stockholders have a negative stockholders' equity (negative book value) — also sometimes called stockholders' deficit.

By rearranging the original accounting equation, Assets = Liabilities Stockholders Equity, it can also be expressed as Stockholders Equity = Assets – Liabilities.

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