The statement explains changes in retained earnings.
Definition: Retained earnings represent the cumulative earnings retained in the business after dividends are paid out.
Owner Investment: The owners invested $10,000 into the company.
Revenue Earned: The company generated $1,000 in revenue from selling goods/services.
Expenses Incurred: The total expenses for the company were $2,000, encompassing various types.
Dividends Paid: The company distributed $500 in dividends.
Net Income Calculation: To determine retained earnings, net income is derived from the income statement:
Net Income = Revenue - Expenses
In this case, it appears that additional calculation is necessary, including revenue and expenses.
It is necessary to create a link between the retained earnings statement and the income statement.
Assets: Increase from $78,000 to $86,000, resulting in an $8,000 increase.
Liabilities: Decrease from $38,100 to $35,100, resulting in a $3,000 decrease.
No Additional Shareholder Transactions: Assumes no further stockholder equity transactions occurred during this period.
Equation: Assets = Liabilities + Shareholders' Equity
Change Form of the Equation: Change in Assets = Change in Liabilities + Change in Shareholders' Equity.
Implication: This equation holds true at both the beginning and end of the year.
Given the expense totals of $3,000 and considering increased liabilities and assets, the question regarding revenue arises.
Final Revenue Calculation: Revenue must exceed expenses by a sufficient margin to fit into the overall equation of retained earnings.
Sections: The cash flow statement includes three primary sections:
Operating Section
Investing Section
Financing Section
Importance: The ending balance from the cash flow statement connects to the overall balance sheet as well as the retained earnings statement.
Four Primary Financial Statements:
Income Statement: Reports on revenue and expenses.
Retained Earnings Statement: Tracks cumulative retained earnings.
Balance Sheet: Displays total assets, liabilities, and equity.
Cash Flow Statement: Provides insight into cash generation and utilization.
Internal Linkage: Each financial statement is interconnected, particularly the income statement and retained earnings statement, emphasizing their collective importance in financial reporting.
Footnotes: Provide additional details that enhance the transparency and understanding of figures presented in the financial statements, e.g., inventory details.