How to make Journal Entries for Retained Earnings
The retained earnings figure lies in the Share Capital section of the balance sheet. The retained earnings figure shows the collected profits of past and current periods that are distributable to the stockholders of a corporation; the amount presented through retained earnings originates from the corporation’s income statements (Profit and Loss report).
Net Income or Loss
The closing entries of a corporation include closing the income summary account to the Retained Earnings account.
If the corporation was profitable in the accounting period, the Retained Earnings account will be credited;
Cr Retained Earnings
if the corporation suffered a net loss, Retained Earnings will be debited.
Dr Retained earnings
When dividends are declared by a corporation’s board of directors, a journal entry is made on the declaration date to debit Retained Earnings and credit the current liability Dividends Payable. It is the declaration of cash dividends that reduces Retained Earnings.
Dr Retained Earnings
Cr Dividends Payable