Accumulated retained earnings

A financial report contains two important documents—the balance sheet and the income statement. Two other documents that appear in the financial report are the accumulated retained earnings and the changes in working capital. All these documents are discussed in the following sections using a fictitious company. 

Internal funds Capital available from depreciation and accumulated retained earnings. 

Stockholders Equity. This is the total interest that the stockholders have in the business. The stockholders equity is the net worth of the company, namely, the total assets minus the total liabilities. For convenience, stockholders equity is divided into three categories capital stock, capital surplus, and accumulated retained earnings. 

Accumulated Retained Earnings. This term is sometimes used synonymously with earned surplus. The accumulated retained earnings are calculated by subtracting the dividends paid to the stockholders from the net profit. If... 

Total Stockholders Equity. The total stockholders equity is the sum of the preferred stock, common stock, capital surplus, and accumulated retained earnings. 

Accumulated retcdned earnings is an important part of the financial report because it shows how much money the company has retained for its growth and how much is paid out as dividends to stockholders. When the accumulated retained earnings increase, the company has more value (5). 

Accumulated Retained Earnings TOTAL STOCKHOLDERS EQUITY... 

The second part of the balance sheet in Table 16.3 lists the liabilities and stockholders equity. Current liabilities include all payments that must be made by the company within one year. The total for U.S. Chemicals is 4,153,(XX),0(X). Long-term debts, often in the form of bonds, are due after more than one year from the date of the balance sheet. They total 3,943,(XX),000. Other noncurrent liabilities total 1,754,(XX),(XX) and include pension and other postretirement benefits as well as reserves for any company operations that are discontinued. Total liabilities are 9,850,000,000. We note that liabilities are less than assets by 4,361,(XX),0(X). Thus, by Eq. (16.1), this difference must be the stockholders equity. This equity includes the par value of issued common stock, which totals 1,(XK),000,(X)0. The par value of a share of stock is an arbitrary amount that has no relationship to the market value of the stock, but is used to determine the amount credited to the stock account. If the stock is issued for more than its par value, the excess is credited to the account shown as capital in excess of par value. In Table 16.3, the par value is 1.00 per share but the stock was issued at 4.23 per share. Companies frequently repurchase shares of their common stock, resulting in a reduction of stockholders equity. Because the shares are placed in a treasury, the transaction appears as treasury stock at cost. In Table 16.3, that amount is 3,428,000,000. The other account under stockholders equity is retained earnings, which is the accumulated retained earnings that is increased each year by net income. Tte amount of this entry must be such that Eq. (16.1) is satisfied. This is seen to be tte case in Table 16.3, where the net stockholders equity is 4,361,000,000, giving total liabilities plus stockholders equity as 14,211,000,000, which is equal to total assets. 

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