Retained earnings are affected by three types of transactions

The three types of transactions are revenues, expenses, and dividends. The increase and decrease in a stock are known as revenues and expenses respectively. An example is if a customer agrees to pay you soon for a service that the company will perform, the money is recorded in the accounts receivable which increase the asset value but decrease the stockholder’s equity amount which is an example of revenue.

However, if a company promises to provide a service in the future then this is known as an expense. When this happens, the assets decrease and the liabilities is increased. When the revenues exceed the expenses, this is known as the net income which is good, and on the other hand when expenses are greater than revenues then this is known as net loss which means that you are losing business or your business costs more to operate than what you make.

Dividends are the distribution of assets to stockholders which refer to the past earnings. Do not confuse expenses with dividends, because they both are reducing the retained earnings amount. Retained earnings are the collected net income or revenues minus expenses.

The financial statements are the main way for communicating information about a business to those who have interest in it. These statements show how a business is doing in financial terms. However, like a variety of methods and models, financial statements are not perfect and have their flaws.

There are four main financial statements, and they are income statement, the statement of retained earnings, the balance sheet, and the statement of cash flows. What the income statement does is summarize the revenues earned or the money made, and the expenses or the money that is deducted from a business. Many accountants consider it the most important financial report because it makes it clear whether a business has met its profitability goal.

The statement of retained earnings displays the retained earnings over a period. The time that the retained earnings will be zero is when a company first started out in their accounting period. A lot of companies use the statement of stockholder equity as a substitute of retained earnings.

The statement of stockholder equity is a more detailed statement because it displays not only the aspects of retained earnings, but it also shows the changes in the stockholders’ equity accounts. The financial situation of a business on a particular date, usually on the end of the month or the year is the balance sheet. The balance sheet displays the value of a business according to their assets and the claims against those assets which are the liabilities and the stockholders’ equity.

The statement of cash flows is geared towards a company’s liquidity measures. The statement of cash flows is basically the flow and outflow of cash in a company. The net cash flow is the subtraction between the inflow and outflow of money.

The statement of cash flows also displays the money generated by simply operating a business, and it also displays the investing and financing transactions that occurs during a particular accounting period. Merchandise stores have a couple of objectives. Merchandise stores need to decide on the price that they are willing to sell the merchandise, and the quality of service that they need to give customers.

There are a couple of well-known department stores in the world, and they are Wal-Mart and Target. A department store can have the option of setting high prices for items and providing quality service, or they can become a discount store. A discount store sells items at frugal price but provide little to no customer service.