The recordings on this page explains how to prepare
journal entries relating to share capital, dividends and transfers to retained earnings at the end of each accounting year
share capital account
dividends account
retained earnings account
statement of financial position (extract)
It will be good to remember how statement of financial position (extract) is prepared for private limited company as it will help in journal entries and ledger accounts preparation.
It will be especially useful if you can commit to memory how to calculate ending retained earnings as shown in the picture on the right.
$z = ending retained earnings
Share capital is Cr in nature, Cr is (+) (think Capital)
Dividends is Dr in nature, Dr is (+) (think Drawings)
Retained earnings is Cr in nature, Cr is (+) (think Income)
You can first forward to 3:40 if you do not need help on how to remember if Dr or Cr is (+) for the 3 accounts.
When business issues shares (usually to raise funds for expansion):
Dr Cash at bank (+A)
Cr Share capital (+)
When business declares dividends:
Dr Dividends (+)
Cr Cash at bank (-A) / Dividends payable (+L)
When business pays dividends which was earlier declared but not yet paid:
Dr Dividends payable (-L)
Cr Cash at bank (-A)
At the end of each accounting year
Step 1: Transfer of profit for the year to retained earnings:
Dr Income Summary
Cr Retained earnings (+)
or Step 1: Transfer of loss for the year to retained earnings:
Dr Retained earnings (-)
Cr Income Summary
Step 2: Transfer of total dividends declared in the year to retained earnings
Dr Retained earnings (-)
Cr Dividends (-)
Always bal b/d to the 1st day of the next account year.
Always zero balance at the end of each accounting year by transfer of balance to retained earnings account
At the end of each accounting year, transfer
(i) profit/loss for the year and
(ii) total dividends declared for the year to retained earnings account (do this last)
And then bal b/d to the 1st day of the next accounting year