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Retained earnings means the net profit after tax less dividends paid less profits appropriated. In simple terms, it is the earnings available for distribution to common stock holders. In the captioned question, analyze each transaction. 1. The company has just started business 2. It has issued 25000 shares (par or issue value not known) - this is a capital receipt. 3. Purchased office supplies 2,000 is an asset and will be expensed as and when used. 4. Electricity bill has been incurred but not yet paid. It is an expense of 500 and a current liability for accrued expenses of 500 5. Since no revenue has yet been earned the company has incurred a loss of 500 which will represent the retained earnings at this stage.

by rehman vohra

5 months ago

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Retained earnings - portion of net income retained by the company. Each year, the net income (or loss) closes out to retained earnings. In your example: Year 1: Net Income/(Loss) - (2,500) - made up of office supplies and accrued electric bill Retained Earnings - 0 - Current Year Income/(Loss): (2,500) Year 2: Retained Earnings/(Loss): (2,500) Current Year Income/(Loss): - 0 -

by 123456789- 5 months ago