Nature of Retained Earnings

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• Because RE has been the object of manipulation the modified all-inclusive concept of net income presentation was developed, i.e., the current I/S format.
  • Except for specified exceptions (extraordinary items, discontinued operations, cumulative effect of a change in accounting principle) transactions will normally flow into the net income from operations (before extraordianry items) figure.
  • Be especially careful of credits to retained earnings as they would overstate this account.

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