Windsor Corporation has retained earnings of $706,000 at January 1, 2020. Net income during 2020 was $1,643,000, and cash dividends declared and paid during 2020 totaled $82,100. Prepare a retained earnings statement for the year ended December 31, 2020. (List items that increase retained earnings first.) WINDSOR CORPORATION Retained Earnings Statement
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![**Windsor Corporation Retained Earnings Analysis**
Windsor Corporation has retained earnings of $706,000 as of January 1, 2020. The net income for the year 2020 was reported to be $1,643,000. During the same year, the total amount of cash dividends declared and paid was $82,100.
**Retained Earnings Summary for the Year Ended December 31, 2020:**
1. **Retained Earnings at the Beginning of 2020 (January 1, 2020):** $706,000
2. **Add: Net Income for 2020:** $1,643,000
3. **Less: Cash Dividends Declared and Paid in 2020:** $82,100
The purpose of this exercise is to prepare a retained earnings statement for Windsor Corporation for the year ending December 31, 2020, by listing the items that increase retained earnings first (net income) and subsequently subtracting the items that decrease retained earnings (dividends paid).
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**Retained Earnings Statement Visual Representation:**
Below the textual information, there is a retained earnings statement presented with a clear layout highlighting the beginning balance of retained earnings, addition of net income, subtractions for dividends, and the resulting retained earnings at the end of the fiscal year. The specifics and numerical values in the provided statement document these elements systematically.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd87d8eee-b792-430e-98e8-ed118dd425ec%2F162e2856-49a3-471e-8316-4e6dda64133f%2Fiqqzwx7_processed.jpeg&w=3840&q=75)
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