Section 3The Statement of Retained Earnings and the Balance Sheet What You’ll Learn  How to prepare a statement of retained earnings for a merchandising corporation.  How to prepare a balance sheet for a merchandising corporation.  How to analyze the balance sheet. What You’ll Learn  How to prepare a statement of retained earnings for a merchandising corporation.  How to prepare a balance sheet for a merchandising corporation.  How to analyze the balance sheet.

Why It’s Important The statement of retained earnings reports how the Retained Earnings stockholders’ equity account changes from the beginning to the end of the period. The balance sheet reports the financial position of the business on the last day of the period. Why It’s Important The statement of retained earnings reports how the Retained Earnings stockholders’ equity account changes from the beginning to the end of the period. The balance sheet reports the financial position of the business on the last day of the period. Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.) Key Terms  statement of retained earnings  horizontal analysis  base year  working capital Key Terms  statement of retained earnings  horizontal analysis  base year  working capital

The Statement of Retained Earnings A statement of retained earnings reports the changes that take place in the Retained Earnings account during the period. These changes result from business operations and the distribution of earnings to stockholders through dividends. The Statement of Retained Earnings A statement of retained earnings reports the changes that take place in the Retained Earnings account during the period. These changes result from business operations and the distribution of earnings to stockholders through dividends. Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.)

The Statement of Retained Earnings (cont'd.) Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.)

The Balance Sheet The balance sheet reports the balances of all asset, liability, and stockholders’ equity accounts for a specific date. Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.)

Analyzing Amounts on the Balance Sheet Horizontal analysis is the comparison of the same items on financial statements for two or more accounting periods or dates and the determination of changes from one period or date to the next. Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.)

Working Capital The amount by which current assets exceed current liabilities is known as working capital. Because current liabilities are usually paid for out of current assets, working capital represents the excess assets available to continue operations. Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.) Current Assets – Current Liabilities = Working Capital Current Assets – Current Liabilities = Working Capital $110,182.00–$17,592.09=$92, $110,182.00–$17,592.09=$92,589.91

Check Your Understanding What is reported on a statement of retained earnings? Section 3The Statement of Retained Earnings and the Balance Sheet (cont'd.)