Retained Earnings definitions Flashcards
Retained Earnings definitions
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Retained Earnings Portion of net income from prior periods not distributed as dividends, often reinvested in business assets rather than held as cash. Net Income Amount remaining after all expenses are subtracted from total revenues, increasing equity accounts such as retained earnings. Dividends Distributions of profits to shareholders, reducing the balance of retained earnings when declared. T-Account Visual representation of an account showing increases on one side and decreases on the other, used for tracking balances. Base Formula Equation: beginning balance plus additions minus subtractions equals ending balance, used to track account changes. Beginning Balance Amount present in an account at the start of a period, serving as the foundation for further calculations. Ending Balance Final amount in an account after all additions and subtractions for a period have been accounted for. Retained Deficit Negative balance in retained earnings, often resulting from accumulated losses or excessive dividend payments. Equity Ownership interest in a company, increased by net income and decreased by losses or distributions like dividends. Credit Balance Positive amount on the right side of an account, typical for equity accounts such as retained earnings. Debit Balance Negative amount on the left side of an account, indicating reductions in equity or assets. Additions Increases to an account, such as current period net income added to retained earnings. Subtractions Decreases to an account, including dividends and net losses deducted from retained earnings. Assets Resources owned by a company, which may be purchased using retained earnings rather than holding cash. Net Loss Situation where expenses exceed revenues, resulting in a decrease to retained earnings.
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