Couple of balance sheet accounting questions?
Couple of balance sheet accounting questions?
a) If a company generates say $500k in net income for the quarter and uses it to retire long term debt, what is the adjustment to the asset side of the balance sheet? Or does retained earnings go down? But the $500k is from new income, so shouldn't retained earnings stay the same?
b) If a company has net earnings of say $500k and pays it out as a cash dividend, what happens to the balance sheet? Nothing?
Answers:
Chosen Answer
ustoev: A: The change is a credit to cash and a debit to long term debt. Doe not affect the earnings at all. Retained earnings remains the same. B: Credit to cash and a debit to stockholder equity. Again it does not affect the retained earnings but does affect the balance sheet. From one year to the next, the comparison of balance sheet would be the same. But the entries are on the balance sheet and not the P&L.
2008-02-05 09:33:52
ustoev: A: The change is a credit to cash and a debit to long term debt. Doe not affect the earnings at all. Retained earnings remains the same. B: Credit to cash and a debit to stockholder equity. Again it does not affect the retained earnings but does affect the balance sheet. From one year to the next, the comparison of balance sheet would be the same. But the entries are on the balance sheet and not the P&L.
2008-02-05 09:33:52