What happens to retained earnings when there is a debit entry recorded?

When a debit entry is recorded against retained earnings, it results in a decrease in the retained earnings balance. Retained earnings represent the accumulated profits of a company that have not been distributed to shareholders as dividends.

In accounting, debits generally reflect either an increase in asset accounts or an expense, or decrease in liability and equity accounts. Since retained earnings are classified as part of equity, a debit to retained earnings reduces this account, reflecting a distribution of earnings, losses, or corrections from previous periods.

For instance, if a company incurs a loss, this loss would be recorded as a debit, which would directly reduce the retained earnings balance. Similarly, if dividends are declared, the total amount of dividends would also create a debit entry to retained earnings, further decreasing the amount retained in the business. Thus, when analyzing the effects of a debit entry on retained earnings, it's clear that it results in a decrease.