Question

Compare and contrast the concept of capital maintenance, comprehensive income, and retained earnings.

Answer 1

Capital Maintenance :

capital maintenance means that profit is essentially the increase in net assets during a period.This concept excludes the following cash flows a) Increase in assets from the sale of stock to shareholders (increases cash) ; b)Decrease in assets from the payment of dividends or other distributions to shareholders (decreases cash)

Comprehensive Income :

Comprehensive income is the sum of net income and other items that must bypass the income statementbecause they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses. These items are not part of net income, yet are important enough to be included in comprehensive income, giving the user a bigger, more comprehensive picture of the organization as a whole.

Retained Earnings :

Retained earnings are reported at the end of an accounting period as the accumulated amount of a company's prior earnings, net of dividends. They can show a positive earnings accumulation or can turn negative and have a deficit if a current period's net loss exceeds the period's beginning retained earnings. Even though changes in retained earnings during each accounting period are not explicitly reported, they can be inferred by comparing the amounts of beginning and ending retained earnings of the period. An increase or decrease in accumulated retained earnings during an accounting period is the direct result of the amounts of net income or loss and dividend payouts for that period.