Which financial statement shows the changes in common stock and retained earnings?
 Financial and Managerial Accounting: The Basis for Business Decisions, 12/e Show
Jan R. Williams, University of Tennessee Income and Changes in Retained Earnings Chapter 12 - Summary LO 1 Describe how discontinued operations, extraordinary items, and accounting changes are presented in the income statement. Each of these irregular items is shown in a separate section of the income statement, after determination of the income or loss from ordinary and continuing operations. Each special item is shown net of any related income tax effects. LO 2 Compute earnings per share. Net earnings per share is computed by dividing the income applicable to the common stock by the weighted-average number of common shares outstanding. If the income statement includes subtotals for income from continuing operations, or for income before extraordinary items, per-share figures are shown for these amounts, as well as for net income. LO 3 Distinguish between basic and diluted earnings per share. Diluted earnings per share is computed only for companies that have outstanding securities convertible into shares of common stock. In such situations, the computation of basic earnings per share is based on the number of common shares actually outstanding during the year. The computation of diluted earnings per share, however, is based on the potential number of common shares outstanding if the various securities were converted into common shares. The purpose of showing diluted earnings is to warn investors of the extent to which conversions of securities could reduce basic earnings per share. LO 4 Account for cash dividends and stock dividends, and explain the effects of these transactions on a company's financial statements. Cash dividends reduce retained earnings at the time the company's board of directors declares the dividends. At that time, the dividends become a liability for the company. Stock dividends generally are recorded by transferring the market value of the additional shares to be issued from retained earnings to the appropriate paid-in capital accounts. Stock dividends increase the number of shares outstanding but do not change total stockholders' equity. LO 5 Describe and prepare a statement of retained earnings. A statement of retained earnings shows the changes in the balance of the Retained Earnings account during the period. In its simplest form, this financial statement shows the beginning balance of retained earnings, adds the net income for the period, subtracts any dividends declared, and thus computes the ending balance of retained earnings. Any prior period adjustments also are shown in this financial statement. LO 6 Define prior period adjustments, and explain how they are presented in financial statements. A prior period adjustment corrects errors in the amount of net income reported in a prior year. Because the income of the prior year has already been closed into retained earnings, the error is corrected by debiting or crediting the Retained Earnings account. Prior period adjustments appear in the statement of retained earnings as adjustments to beginning retained earnings. They are not reported in the income statement for the current period. LO 7 Define comprehensive income, and explain how it differs from net income. Net income is a component of comprehensive income. As the term implies, comprehensive income is broad and includes the effect of certain transactions that are recognized in the financial statements but that are not included in net income because they have not yet been realized. An example is the change in market value of available-for-sale investments. Net income is presented in the income statement. Comprehensive income may be presented in a combined statement with net income, in a separate statement of comprehensive income, or as a part of the statement of stockholders' equity. LO 8 Describe and prepare a statement of stockholders' equity. This expanded version of the statement of retained earnings explains the changes during the year in each stockholders' equity account. It is not a required financial statement but is often prepared instead of a statement of retained earnings. The statement lists the beginning balance in each stockholders' equity account, explains the nature and the amount of each change, and computes the ending balance in each equity account. Financial statement? (definition)A financial statement is a report that shows the financial activities and performance of a business. It is used by lenders and investors to check a business’s financial health and earnings potential. Financial statements can cover any period of time, although they’re most commonly prepared at the end of a month, a quarter, or a year. Types of financial statementThere are four basic financial statements in accounting: 1. Balance sheet: A snapshot of your business’s financial condition at a single point in time, it shows what you own (your assets) vs what you owe (your liabilities). The difference between the two is often used as a starting point for valuing a business. 2. Profit and loss statement: Also called an income statement, this report shows your business’s revenues and expenses. Expenses are subtracted from revenues to show your business’s profit or loss figure, also known as net income. 3. Cash flow statement: Also called a statement of cash flows, this report shows changes to the cash coming in and out of your business over a period of time. It only records cash (which may not be all of your income), and includes amounts received from lenders and investors. A cash flow statement shows whether you can cover short term expenses like bills and payroll. 4. Statement of changes in equity: Also called a statement of owner's (or shareholder’s) equity, or statement of retained earnings, this report shows how much money your business keeps (rather than pays out to shareholders or owners). Often, these retained earnings are used to make debt payments or are reinvested in the business. Combined, these statements provide a good view of the financial health of your business. Handy resourcesAdvisor directoryYou can search for experts in our advisor directory Find an advisor Financial reportingKeep track of your performance with accounting reports Find out more DisclaimerThis glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice. What financial statement is retained earnings on?Retained earnings appear in the shareholders' equity section of the balance sheet.
What financial statements does common stock appear on?Common stock is reported in the stockholder's equity section of a company's balance sheet.
Which financial statement shows the changes that have occurred to stock accounts?The financial statement that lists the components of stockholders' equity, their balances, and the changes that occurred during an accounting year is also known by the following titles: Statement of stockholders' equity.
Which financial statement shows the amounts and causes of changes in retained earnings for a specific time period?A statement of retained earnings, or a retained earnings statement, is a short but crucial financial statement. It's an overview of changes in the amount of retained earnings during a given accounting period.
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