When a company is created, if its only asset is the cash invested by the shareholders, the balance sheet is balanced through share capital.
The balance sheet is one of the three fundamental financial statements.
These statements are key to both financial modeling and accounting.
A company is normally subject to a company tax on the net income of the company in a financial year.
The amount added to retained earnings is generally the after tax net income.
The retained earnings of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period.
At the end of that period, the net income (or net loss) at that point is transferred from the Profit and Loss Account to the retained earnings account.A stockholders' deficit does not mean that stockholders owe money to the corporation as they own only its net assets and are not accountable for its liabilities, though it is one of the definitions of insolvency.It means that the value of the assets of the company must rise above its liabilities before the stockholders hold positive equity value in the company.If a company is publicly held, the balance of retained earnings account that is negatively referred to as "accumulated deficit" may appear in the Accountant's Opinion in what is called the "Ongoing Concern" statement located at the end of required SEC financial reporting at the end of each quarter.Retained earnings are reported in the shareholders' equity section of the corporation's balance sheet.This increases the share price, which may result in a capital gains tax liability when the shares are disposed.