The term retained earnings means the accumulated excess of earnings over losses and dividends. The statement of retained earnings is generally included with almost any set of financial statements although it is not considered to be one of the major financial statements.
A typical statement of retained earnings starts with the opening balance of retained earnings, the net income for the period as an addition, the dividends as a deduction, and ends with the closing balance of retained earnings. The statement may be prepared and shown on a separate sheet or included at the bottom of the income statement. The balance shown by the income statement is transferred to the balance sheet through the statement of retained earnings after making necessary appropriations. This statement thus links the income statement to the retained earning item on the balance sheet. This statement can be prepared in `t’ shape also when it is called as profit and loss appropriation account. Illustration `f ’ gives the statement of retained earning of ali akbar ltd.
Illustration – F Ali Akbar Ltd.
For The Year Ended 31st March 2012