Final answer:
Retained earnings are impacted by revenue, expenses, dividends declared, and investment gains or losses. Revenue and gains increase retained earnings, while expenses and dividends decrease it. Macroeconomic factors indirectly influence financial performance, which can also affect retained earnings.
Step-by-step explanation:
The retained earnings account reflects the accumulated net income of a company that has not been distributed to shareholders in the form of dividends. Several accounts may impact retained earnings, including revenue, expenses, dividends declared, and gains or losses from investments.
When a company earns revenue, it increases retained earnings since net income, which is added to retained earnings, is revenue minus expenses. Conversely, expenses reduce net income and therefore decrease retained earnings. Dividends reduce retained earnings as they represent distribution of earnings to shareholders. Also, realized investment gains increase retained earnings, while losses from investments decrease it.
As it relates to macroeconomic accounts, such as Table 23.7 with private household saving (SH), tax revenue (T), government spending (G), and investment spending (I), it is important to understand that while these do not directly affect a company's retained earnings, they reflect economic conditions that might indirectly impact a company's financial performance and consequently its retained earnings.
Regarding the T-account, it's a method of accounting that can illustrate the effect of transactions on retained earnings. The left side lists the company's assets and expenses, while the right shows liabilities, shareholders' equity (which includes retained earnings), and revenue. Increases in assets or expenses (left side) are often balanced by equal increases in liabilities, equity, or revenue (right side), influencing the retained earnings amount.