I have 2 Qusetions:?

Question

1)Why does an Small and medium enterprises formed as a C-Corporation with 75 or fewer shareholders need to prepare a Statement of Retained Earnings?

2)Does it also need to do so if it is an S-Corporation with 75 or fewer shareholders? Why or why not?

Answer 1

Generally accepted accounting principles require a Statement of Retained Earnings for two reasons;

    1. As a step in preparing the Balance Sheet

    2. To show the changes in shareholder equity in detail.

Since an S-Corp is really a C-Corp that has elected to pass all of its earning on to its shareholders there are no retained earnings (from a tax perspective).  Many S-Corps feel that maintaining separate sets of books for tax purposes and to conform to generally accepted accounting principles is overkill and choose to ignore generally accepted accounting principles and omit the Statement of Retained Earnings.

Hope this helps

Jerry-the-bookkeeper