Statement of Retained Earnings

Definition

The Statement of Retained Earnings reconciles the opening balance of retained earnings to the closing balance by adding net income (or subtracting net loss) and deducting dividends declared. Under ASPE it is a required statement in every complete set of financial statements.

Key rules

ASPE Section 3251 requires separate presentation of retained earnings movements. The statement must show:

• Opening retained earnings, as previously reported
• Any retrospective adjustments for prior-period errors or changes in accounting policy (ASPE 1506)
• Opening retained earnings, as restated
• Net income or loss for the period
• Dividends declared (eligible, non-eligible, capital)
• Closing retained earnings

Dividends are recorded on the declaration date, not the payment date. A dividend declared on December 30 but paid on January 5 still reduces retained earnings in the earlier year.

Example

Statement of retained earnings for the year ended December 31, 2026:

Retained earnings, beginning of year             9,600
  (as previously reported)
Correction of prior-period error (net of tax)     (400)
Retained earnings, beginning of year, restated   9,200

Add: Net income for the year                    79,050
                                                88,250
Deduct: Non-eligible dividends declared        (40,000)

Retained earnings, end of year                  48,250

The closing balance must agree to the retained earnings line on the balance sheet.

Common mistakes

• Recording dividends on the cash date instead of the declaration date.
• Treating the corporate income tax charge twice: once on the income statement and again as a direct deduction from retained earnings. Ordinary current-year tax expense flows through net income; tax on an item recognized directly in equity follows that item.
• Forgetting to restate opening retained earnings when a prior-period error is discovered. See correcting prior-period errors.
• Mixing eligible and non-eligible dividends without tracking designations and the applicable GRIP or LRIP rules. A CCPC does not generally maintain an LRIP balance. This matters for T5 reporting.
• Posting shareholder loan repayments through retained earnings. Loan activity belongs on the balance sheet.

Related concepts

This statement bridges the income statement and the balance sheet. Restatements tie to voluntary policy changes and error corrections. Some ASPE filers combine the income statement and the statement of retained earnings into a single Statement of Income and Retained Earnings, which is permitted by ASPE 1400.