earnings

Examples of earnings in the following topics:

• Introduction to the Retained Earning Statement

  • The statement of retained earnings explains the changes in a company's retained earnings over the reporting period.
  • The retained earnings statement explains the changes in a company's retained earnings over the reporting period.
  • The retained earnings statement may appear in the balance sheet, in a combined income statement and changes in retained earnings statement, or as a separate schedule.
  • The retained earnings account on the balance sheet represents an accumulation of earnings since net profits and losses are added/subtracted from the account from period to period.
  • Ending Retained Earnings = Beginning Retained Earnings − Dividends Paid + Net Income.

• Times Interest Earned Ratio

  • Times Interest Earned Ratio = (EBIT or EBITDA) / (Required Interest Payments), and is indicative of a company's financial strength.
  • Times Interest Earned Ratio = Earnings before Interest and Taxes (EBIT) / Interest Expense.
  • Analysts will sometimes use EBITDA instead of EBIT when calculating the Times Interest Earned Ratio.
  • Typically, a Times Interest Earned Ratio below 2.5 is considered a warning sign of financial distress.
  • The Times Interest Earned Ratio is an indication of a company's overall financial health.

• Special Reporting

  • Other special reporting issues include Earnings per Share, Retained Earnings and Intraperiod Tax Allocation.
  • Earnings per Share: If a company reports any irregular items on its income statement, then it must report earnings per share for those items.
  • Earnings per share measures the dollars earned by each share of common stock.
  • Diluted earnings per share are considered a more reliable way to measure earnings per share.
  • Retained Earnings: The statement of retained earnings explains the changes in a company's retained earnings over the reporting period.

• Income Statement Analyses

  • Earnings per Share = (Net Income - Preferred Dividends) / Shares of Stock Outstanding
  • Earnings per share (EPS) is the amount of earnings per each outstanding share of a company's stock.
  • Price to Earnings Ratio = Market Value of Stock / Earnings per Share
  • In stock trading, the P/E ratio (price-to-earnings ratio) of a share (also called its "P/E," or simply "multiple") is the market price of that share divided by the annual Earnings per Share (EPS).
  • The price is in currency per share, while earnings are in currency per share per year, so the P/E ratio shows the number of years of earnings which would be required to pay back the purchase price, ignoring inflation, earnings growth and the time value of money.

• Revenue

  • Revenue is recorded for accounting purposes when it is earned by an entity, which usually involves an exchange of value among two or more parties in an arm's length transaction.
  • In U.S. business and financial accounting, the term "income" is also synonymous with revenue; however, many people use it as shorthand for net income, which is the amount of money that a company earns after covering all of its costs (which is not the same as revenue).
  • Fees Earned and Sales are both examples of Revenue accounts.
  • Revenue should not be recorded until the earnings process is nearly complete and there is little uncertainty as to whether or not collection of payment will occur.
  • This means that revenue is recorded when it is earned, or when the job is complete.

• Dividends Payable

  • When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders as dividends.
  • Many corporations retain a portion of their earnings and pay out the remaining earnings as a dividend.
  • The per share dividend amount is multiplied by the number of shares outstanding and this result is debited to retained earnings and credited to dividends payable.

• Closing the Cycle

  • Only revenue, expense, and dividend accounts are closed—not asset, liability, Capital Stock, or Retained Earnings accounts.
  • Closing the Income Summary account—transferring the balance of the Income Summary account to the Retained Earnings account (also known as the capital account).
  • Closing the Dividends account—transferring the balance of the Dividends account to the Retained Earnings Account
  • Closing or transferring the balance in the Income Summary account to the Retained Earnings account results in a zero balance in the Income Summary.
  • The dividends account is closed directly to the Retained Earnings account.

• Overview of Statement Changes and Errors

  • Make an offsetting adjustment to the opening balance of retained earnings for that period; and
  • If the financial statements are only presented for a single period, then reflect the adjustment in the opening balance of retained earnings.
  • Yet when retained earning for year Z is correct, because the two previous errors cancelled each other out.
  • If the error has not counterbalanced then an entry must be made to retained earnings.
  • If the error has not counterbalanced, an entry is necessary to adjusted beginning retained earnings and correct the current period.

• Unearned and Deferred Revenues

  • In these cases, the earnings process is not complete when the cash is received, so the cash is recorded as a liability for the products or services that are due to the buyer .
  • As each magazine is delivered to the buyer (earnings process is now complete), the applicable "earned" portion of the original payment is transferred from the liability account to subscription revenue, which is disclosed on the income statement.
  • A deferred revenue item involves cash received before the earnings process is complete.

• Recognition of Revenue at Point of Sale or Delivery

  • Goods sold, especially retail goods, typically earn and recognize revenue at point of sale, which can also be the date of delivery if the buyer takes immediate ownership of the merchandise purchased.
  • The revenue earned will be reported as part of sales revenue in the income statement for the current accounting period .
  • For goods shipped under FOB destination, ownership passes to the buyer when the goods arrive at the buyer's receiving dock; at this point, the seller has completed the sales transaction and revenue has been earned and is recorded.
  • If the shipping terms are FOB shipping point, ownership passes to the buyer when the goods leave the seller's shipping dock, thus the sale of the goods is complete and the seller can recognize the earned revenue.