Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 49

Calculate retained earnings On February 1, 2010, the balance of the retained earnings account of Blue Power Corporation was $630,000. Revenues for February totaled $123,000, of which $115,000 was collected in cash. Expenses for February totaled $131,000, of which $108,000 was paid in cash. Dividends declared and paid during February were $12,000.

Required:

Calculate the retained earnings balance at February 28, 2010.

Step 1 of 3

Calculate the retained earnings balance at February 28, 2013:

It is given that the beginning retained earnings balance is $630,000, revenues are $123,000, out of which cash collections are $115,000. Similarly expenses are $131,000, out of which cash payments are $108,000.

Retained earnings balance at the end of month are calculated taking into account the revenues of $123,000 and expenses of $115,000, even though they were not fully paid in cash, to follow the accrual basis of accounting.

Before calculating the retained earnings, we need to find out the net income earned during the month.