Capital contributions

You may need to include a line on your balance sheet for capital contributions. This category is also a corporate account and represents any amounts that the shareholders of the company invest in the business on a semi-permanent basis. For example, if a shareholder knows that the company will need financing to cover its accounts receivable, the shareholder may invest $20,000 in the corporation and not expect it back in the short term. If the shareholder does expect it to be returned soon, you would post it to the due to/from shareholder category in the liabilities section.

 

Retained earnings

Retained earnings represent the accumulated amount of income the corporation still possesses after it has paid all taxes and dividends (discussed below). This net income has accumulated over the life of the corporation. Here's an example:

 Yr1

Net income

$1,000

 

Less: Income taxes

  (250)

 

Less: Dividends paid

  (425)

 

Equals: Retained earnings

  $325

 

 Yr2

Net income

$1,200

 

Less: Income taxes

  (300)

 

Less: Dividends paid

  (150)

 

Plus: Opening retained earnings

    325

 

Equals: Closing retained earnings

$1,075

 


 
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