Question

Explain the difference between paid in capital and retained earnings.

Answer 1

Paid in capital is the amount the company receives when it issue common shares, the investor but these shares and the company receives the cash, it is recoded on the balance sheet on the liability side under stockholders section.

Retained earnings however is that part of retained earnings of the net income (After tax income) that remains after distributing dividend to common shareholders.

The amount is transferred from income statement to the balance sheet. It is also recoded on liability side under stockholders equity section.

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