Tax exempt entities do not have retained earnings in the equity section of their financial statements.

Question

Quizplus · Accepted Answer

Tax exempt entities are typically not-for-profit organizations, and they do not have owners who are entitled to receive dividends or distributions of profits. Therefore, any excess of revenues over expenses is not classified as retained earnings in the equity section of the financial statements. Instead, it may be reported as net assets or fund balance, and it is subject to specific reporting requirements depending on the nature of the organization and its activities.

Tax Exempt Entities Do Not Have Retained Earnings in the Equity