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14.4 Compare and Contrast Owners' Equity versus Retained Earnings

Owners' Equity​

Owners' Equity Components:

  • Share Capital
  • Share Premium
  • Retained Earnings
  • Other Reserves

Total Equity: Total Equity = Share Capital + Premium + Retained Earnings + Reserves

Retained Earnings​

Retained Earnings:

  • Accumulated profits not distributed
  • Increases with net income
  • Decreases with net loss and dividends
  • Part of total equity

Formula: Ending Retained Earnings = Beginning + Net Income - Dividends

Luxembourg Compliance Note​

Equity in Luxembourg:

  • Must be properly classified (PCN Class 1)
  • Must maintain accurate records
  • Must comply with corporate law
  • Must support all balances

Think It Through​

How do share capital and retained earnings differ? How do they work together in owners' equity?