What if there are no Retained Earnings? Accounting help!?

Question

If a company just started and made a statement of retained earnings, do you list the retained earnings on the statement even if there aren't any?

Answer 1

You will usually Debit cash (as this was a cash infusion to get the business started) and Credit PAID IN CAPITAL as retained earnings is EARNINGS from prior years (cumulative) and ALWAYS after tax dollars. (S elections)

Or use a Capitalization Costs (but still a liability account on the Balance Sheet. Retained Earnings is really not the best choice and is not GAAP recommended.

Hope this helps

Answer 2

If you're saying the company just started business as in it's Day One, you cannot make a statement of retained earnings yet, you have nothing to put on it because there are no transactions yet.

On the other hand, if you mean your the company has just started business and it has completed it's first year of operation, you would certainly have no beginning balance of retained earnings in your statement. Your statement of retained earnings would be comprised of your net income for the year less dividends given.

Answer 3

Retained Earnings can be Profit or a Loss.

Your Assets are grand total of everything you own, like inventory, buildings, products, vehicles.

Your Liabilities are grand total of your debts and commitments, for example, you have been using electricity and other untilities, but the bill is not yet here.

Retained Earnings is the difference between those two grand totals. I find it difficult to believe that the total is zero.

I have been working at a variety of different businesses since the 1960's where I have been involved in the computer accounting records. I have NEVER seen the total Assets and total Liabilities balance exactly.

Answer 4

If your company just started business and this is its first completed year of operations, you will need to have a statement of changes in equity or statement of retained earnings. Your balance at beginning of year will be zero, then you add your current year's net income, less dividends (if any) to arrive at the balance at the end of the year. If there are no dividends, then your net income per the income statement is the same figure as your retained earnings, but only for this year.
If you're preparing monthly financial statements, the above still applies, except that instead of net income for the year, you use net income for the month. From the 2nd month onwards, you will have a balance at the beginning of the month, which is the balance at the end of the previous month.