retained earning

[Former Member]

Hi All,

q1 Retained earning account if credit balance means company gains else loss?

q2 Retained earning is transferred from P&L niat (net income after tax) after (sales - expenses), assuming a simple income statement?

q3 If q2 is correct then if income is earning, then it is credit in P&L. When transferred to retained earning it will be credit balance?

q4 If income is a loss then it is a debit in P&L. When transferred to retained earning it will be debit balance?

q5 Normally showing in income statement, the sign for sales is positive whereas for expense value is in bracket. the actual value recorded is not affected, right?

Appreciate to have advice. Thank you.

[Former Member]

Dear Elina

A credit is used to record an Income Or Gain and a Debit records An expenses or Loss.So it is the practice if Retained Earning Account is Showing Debit balance means there is a Accumulated Loss and Vice Versa.Can you Specifically Elaborate what the requirement is?

Sudeep

[Former Member]

Hi,

I just need to know in point form. My intention is to know if my understanding is correct.

Thanks

[Former Member]

Q1- Retained earning account if credit balance means company gains else loss?

Ans-Yes-It means Accumulates Gains if Credit Balance else Loss.The Increase in Credit balance is Current Periods Profit.

Q2- Retained earning is transferred from P&L niat (net income after tax) after (sales - expenses), assuming a simple income statement?

Ans-No-Profit & Loss (Balance) from Profit & Loss Account (i.e Profit After Tax-Allocations) is transfered to retained Earning Account.

Q3- If Q2 is correct then if income is earning, then it is credit in P&L. When transferred to retained earning it will be credit balance?

Ans-Yes Income is Credited to PL,Expenses are debited to P&L.And the balance in P&L if is Debit then is Loss & If is Credit is Gain.The Debit Balance Transfered to Retained Earning Account will Reduce Retained Earning and the Credit Balance will Increase the retained Earning.

Q4-If income is a loss then it is a debit in P&L. When transferred to retained earning it will be debit balance?

Ans-No Income Cannot be Loss.But the Balance in P&L (i.e Excess of Income Over Expenses-Credit More than Debits-Gain//Or Excess of Expenses over Income-Debit more than credit-Loss) is transfered to Retained Earning.Loss transfered will be debited(- Decrease) to Retained Earning and gain Transfered is Credited (+Increase)to retained earning

Q5- Normally showing in income statement, the sign for sales is positive whereas for expense value is in bracket. the actual value recorded is not affected, right?

Yes-Expenses are in Possitive Sign(debit) & Incomes are in Negative sign(credit).If Expense is more than income then Loss Else Profit.

Hope Clarified

Sudeep

[Former Member]

Hi Sir,

Point given.

Except for q5. Infact my question is normally what I see in company prospectus, the sign is the other way around. Which means sales without bracket but expenses with bracket.

The change of sign in report will not impact the balance sheet account?

thanks