Channel: Edspira

Category: Education

Tags: accounting basicsbalance sheetaccounting explained simplyretained earnings accounthow the income statement and balance sheet are connectededsipraretained earningsfinancial accountingincome statementretained earnings examplefinancial statements

Description: The income statement and the balance sheet are connected in that: net income from the income statement affects retained earnings on the balance sheet. You can see that here with Amazon. At the beginning of 2020, Amazon had retained earnings of $31.2 billion. It then posted net income of $21.3 billion for 2020. Thus, Amazon’s retained earnings at the end of 2020 was $52.5 billion. Retained earnings increased because Amazon turned a profit. If Amazon had instead posted a net loss, the loss would have decreased retained earnings. Now let’s take a look at ExxonMobil. The company had $421.6 billion of retained earnings at the beginning of 2019. It then posted a net income of $14.3 billion for 2019. However, retained earnings was actually lower at the end of year: $421.3 billion. This is because ExxonMobil paid $14.6 billion of dividends to its shareholders. And while net income increases retained earnings, dividends decrease retained earnings. Thus, ExxonMobil’s retained earnings at the end of 2019 was $421.3 billion. This was equal to its beginning retained earnings balance plus net income and minus dividends. 0:00 Introduction 0:10 Amazon Example 0:36 ExxonMobil Example — Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education accessible to all people. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES * eepurl.com/dIaa5z — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT * edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST * Apple Podcasts: podcasts.apple.com/us/podcast/scheme/id1522352725 * Spotify: open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc * Website: edspira.com/podcast-2 — GET TAX TIPS ON TIKTOK * tiktok.com/@prof_mclaughlin — ACCESS INDEX OF VIDEOS * edspira.com/index — CONNECT WITH EDSPIRA * Facebook: facebook.com/Edspira * Instagram: instagram.com/edspiradotcom * LinkedIn: linkedin.com/company/edspira — CONNECT WITH MICHAEL * Twitter: twitter.com/Prof_McLaughlin * LinkedIn: linkedin.com/in/prof-michael-mclaughlin — ABOUT EDSPIRA AND ITS CREATOR * edspira.com/about