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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;

Dr Sales
Cr Retained Earnings

if the corporation suffered a net loss, Retained Earnings will be debited.

Dr Retained earnings
Cr Sales

Dividends

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

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