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Retained earnings restriction belongs in a dated, class-level equity analysis. A retained earnings restriction identifies an amount that is unavailable for distribution under a legal, contractual, or discretionary limit. Show the restricted amount and reason clearly within equity or the notes.
Apply it
If retained earnings are $3,000,000 and a debt agreement restricts $600,000, retained earnings remain $3,000,000. The disclosure explains that only $2,400,000 is unrestricted under that agreement.
Review retained earnings restriction against cash dividend. Reconcile retained earnings restriction to shareholders equity rollforward, the dated retained earnings restriction evidence, and its final presentation.
The retained earnings restriction record ties cash dividend to its source date, measured amount, and shareholders equity rollforward effect.
Keep the boundary clear
A restriction does not create a separate cash fund, change total retained earnings, or prove that assets were segregated. An appropriation also cannot absorb costs that belong in income.
Authority
Read ASC 505-10-45-3 for presentation of a retained earnings appropriation.
Put the concept to work
Apply this concept
- Explain and apply retained earnings restriction within a reconciled class-level equity workpaper using supplied authoritative facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Equity — Understand
To apply this concept: Required. This prior idea supplies the quantities or classification needed for the current analysis.