What are the three types of events that affect retained earnings?

What are the three types of events that affect retained earnings?

Nic 1 presentation of financial statements summary

Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (1 ), and in particular Article 3(1) thereof,

Regulation (EC) No 1606/2002 provides that, for financial years beginning on or after 1 January 2005, publicly traded companies governed by the law of a Member State shall, if certain conditions are met, prepare their consolidated accounts in accordance with international accounting standards as defined in Article 2 of that Regulation.

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The objective of this standard is to provide a basis for the presentation of financial statements for general reporting purposes to ensure that they are comparable both with the financial statements of the same entity for previous periods and with the financial statements of other entities. To achieve this objective, the standard first establishes general requirements for the presentation of financial statements and then provides guidelines for determining their structure and sets minimum requirements for their content. Recognition, measurement and disclosure of certain transactions and other events are addressed in other standards and interpretations.

Nic 2

Equity is the total value of a company after deducting debts, i.e., it is the difference between assets and liabilities; therefore, it can be said that it is a concept of differential character. For this same reason, the accounts that make up the net worth are referred to as “differential accounts.”[1][2] The following is a list of the accounts that make up the net worth.

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They are the set of contributions made by the associates in favor of the corporation, which may be in cash or in kind. They constitute one of the main sources of resources, together with the loans made by third parties and the positive results of the fiscal years, which the entity will use to achieve its purposes. They can be divided into two types:

The accounts that compose the net equity must be adjusted taking into account the inflation indexes, which will result in an increase in the amount of the same offset by an inflation result; this will be so for all the accounts of the net equity except for the Share Capital account, which may not increase its amount and therefore the “Capital Adjustment” account will be used instead, which will be considered a non-capitalized contribution.

Nic 12

To establish the basis for the presentation of financial statements for general information purposes in order to ensure their comparability with respect to the statements published by the same company in previous periods, as well as with respect to those of other companies.

This Standard shall apply to the presentation of all types of financial statements for general information purposes that are prepared and presented in accordance with International Accounting Standards.

General purpose financial statements are those that are intended to meet the needs of users who are not in a position to demand reports tailored to their specific information needs.

Consolidated financial statements that comply with IASs may be presented in the same document containing the parent company’s individual statements, if this is contemplated by national standards, provided that the basis of preparation of each type of financial statement is clearly stated in the notes.

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Nic 1 examples of financial statements

To understand more clearly, let’s assume that when balancing a company in 2020, the accountant finds an error in the 2019 balance sheets, for example, a loss that was not included for lost inventory. This can be included in the 2020 fiscal year as an accumulated loss.

Accumulated results, and thus accumulated losses, are part of equity, within the balance sheet. Therefore, a debit represents a decrease in the account balance, while a credit, on the contrary, means an increase.