The retained earnings statement

Question

Quizplus · Accepted Answer

The retained earnings statement shows the changes in the retained earnings balance over a period. It begins with the beginning balance of retained earnings, adds net income or subtracts net loss, and adjusts for dividends. If there was an understatement of net income in a prior year, it will require an addition to the beginning retained earnings balance. Therefore, option B is correct. Option A is incorrect because the owners' equity statement includes not only retained earnings but also other equity accounts. Option C is incorrect because the retained earnings statement reflects net losses by subtracting them from the beginning retained earnings balance. Option D is partially incorrect because the retained earnings statement should reconcile the beginning and ending retained earnings balances, but in some cases, it may fail to do so due to errors or omissions.

The Retained Earnings Statement