The Retained Earnings Statement Should Be Prepared

 

The Statement of Retained Earnings should be prepared after the Income Statement but before Statement of Financial Position or balance sheet as we want to know which portion of net income is retained in the business for running the business, for emergency purposes and for any other purposes and which is used to pay dividend to shareholders / stockholders as they share their contribution to the net income of the business.

There is also a valid reason to prepare retained earnings statement after income statement but before balance sheet is that we can easily check whether the business is in a position to invest or to expand or to grow or to payoff easily from retained earnings or it needs loan or need more investment shares from owners.

Also, due to Proper Order of Financial Statements, it is highly recommended to prepare firstly Income Statement, then statement of retained earnings in the second order and then balance sheet and in the 4^th step, we prepare Statement of Cash Flows.