[chipster1]

Can the net income be less than the dividends in a retained earnings statement? If so can you show negative balance or do you show the balance as 0?:eek:

[morgaine300]

The balance would be however it happens to come out. If something comes out negative, then it's negative. The difference can't just go poof.

However, having dividends greater than net income doesn't necessarily put retained earnings into a negative. Retained earnings isn't just comprised of the current year earnings less dividends. It's an accumulation. It's the cumulative earnings that is retained in the company -- that is, each year the net income less any dividends goes into that account, and stays there when you close the books. So it carries into the next year and you already have some in there. Then the next year it happens again. You again have current net income less dividends, that goes into retained earnings, and adds to whatever was already in there from the year before, etc.

So just cause the current year might be a negative in terms of net income versus dividends, that just means it's a decrease to the retained earnings balance, and doesn't necessarily mean the retained earnings went into a negative.

And yes, they can pay more dividends than they had net income. The most likely thing is cutting into prior year earnings that have not been paid out. But it is possible retained earnings can go negative (called a deficit). There's something going on, though, if they're paying more in dividends than they've accumulated in the retained earnings.