Retained losses - just for knowledge10 Oct 2021 19:05
A retained loss is a loss incurred by a business, which is recorded within the retained earnings account in the equity section of its balance sheet. The retained earnings account contains both the gains earned and losses incurred by a business, so it nets together the two balances. Thus, obtaining the cumulative retained losses of a business can be difficult to derive, unless the business has incurred nothing but losses since its inception.
If a business has a cumulative retained loss (also known as negative retained earnings), it has a debit balance in the retained earnings account. The account normally has a credit balance, which is caused by the cumulative generation of profits over time. If a corporation has a retained loss, this does not mean that the shareholders must pay the amount of the loss to the company; shareholders are only liable for their initial investment in the business, so the company may have to offset its retained losses by other means, such as:
- Reducing its investment in working capital
- selling more shares to investors
-Obtaining loans from lenders