 it when it's declared meaning we have a dividend that's going to be a debit and then we're going to credit like a liability just dividends payable. Why? Because we've committed or the company has committed to giving a dividend therefore we're going to reduce the retained earnings. We're going to show a dividend in the equity section and we're going to show that we have that company has a liability because they have two to the shareholders because they have declared that they will indeed give that dividend then of course they'll pay the dividend at a later point in time at which point they will credit cash decreasing cash and reduce the dividend payable liability account. Now again that's usually that's basically it with regards to retained earnings it's a really important account but really it's basically the net income that's going to roll into it or the loss and the dividends we talked about the auditing process of the dividends and with regards to the net income of course we will audit net income but we're going to audit net income as we audit basically the income statement accounts and notice even the income statement accounts as we'll discuss in future presentations much of the auditing of the income statement actually happens as we audit the accounts on the balance sheet and the processes related to them because as we think about the processes we think about the related accounts that will be both income statement and balance sheet accounts and as we audit things on the balance sheet and consider the processes as we do so we typically do a lot of auditing on the income statement as well so in other words with regards to retained earnings the net income will roll in which comes from the income statement we're going to audit basically the income statement and to get to the net income statement and so so we're not going to spend a lot of time thinking about that that transaction with regards to retained earnings because we'll be auditing and thinking about it in terms of the income statement so obviously we're going to tie out and make sure that the net income that's recorded closed out and reported in the books ties out to the income statement that basically being taken care of hopefully by just simply the double entry accounting system that wasn't the case we wouldn't be in balance and then we have the other types of transactions however that could affect retained earnings if they are present we would want to be concerned with them and look into them so prior period adjustments so if there were any like prior period adjustments that got recorded to retained earnings in other words like if there was an adjustment in the prior period and we made it this year then that adjustment is going to be something that's going to roll into basically retained earnings going to affect retained earnings because it was in the prior period the prior period was closed out to retained earnings and then we adjusted it so now there's going to be some kind of adjustment some kind an adjustment to retained earnings. Correction of an error, that's another thing that could possibly happen. If there was an error and it got corrected, then if some period was closed out already, the adjustment might go to retained earnings if we had to, depending on how we correct that error. So for example, I mean, if a check, if you cancel the check in the prior time period and the check was going to an expense account, and we said that was an error, and then we adjusted it, of course, and that expense account was rolled over to retained earnings, then it could affect basically the retained earning account. So we're going to check that item and then the stock retirements. So any kind of stock retirements that transaction happens, we'll check those items. Now note in publicly traded companies, this should, we would expect retained earnings to basically be accounted for to roll forward. If there's any kind of adjustments with these items, then they would basically be accounted for and we can, we can look into them and test them. If we're talking about smaller companies and you're talking about a review or something like that, the first thing we're probably going to do is check that retained earnings does indeed tie out, meaning does the beginning retained earnings, you know, match what was on last year's financial status. The last year's ending retained earnings should be the beginning balance in the retained earnings account in the general ledger for the current year. And then any transactions that happens, you would think would only be things like dividends that would be decreasing it and the net income at the end of the year, if how so. The first thing you want to do in a smaller audit is check to make the sure that that is indeed the case. And if it's not, then it could be the case that some kind of prior period adjustment happened, some kind of adjustment happened that that closed that adjusted the books in the prior period and then rolled out to the retained earnings. So now retained earnings doesn't tie out as it should. And if that's the case, then you got to go back and think about what, you know, try to dig through and figure out what happened. And the easiest way to do that is to basically line up, line up the balance sheet accounts as they are in the current system for the beginning of the time period or the end of last time period and try to match that up to the audited financial statements or the completed financial statement or reviewed financial statements in the prior time period. And then you can match those up and take the difference and see where the differences are which accounts are off. And then you can go back and see what kind of prior period adjustment happened and whether or not it is correct. So again, in publicly traded companies, we would expect retained earnings to roll forward to be taken care of. And then if any adjustments in there, we just take a look at the transactions and make sure that's the case in small companies. If you're working with small companies for reviews or something like that or even tax returns, then that's probably checking that retained earnings roll forward correctly is one of the first things you probably want to look at. And then you want to consider if there were any prior period adjustments that were made either correctly or incorrectly. And look into that. And the best way to do that is to match up the balance sheet accounts as of the end of last year to what's currently in the system, hopefully as of the end of last year if you have it. And then you can see what the differences are.