According to generally accepted accounting principals (GAAP), increases to the retained earnings account on the balance sheet are reflected with a credit entry. Decreases to returned earnings, as might be found with a net loss, are accounted for with a debit entry into the accounting journal.
Retained earnings appears in the stockholders' equity section of the balance sheet. Stockholders' equity has two primary components: contributed capital (capital stock) and retained earnings, both of which have a normal credit balance. Retained earnings represents the amount of capital available to distribute to shareholders of the company. According to the American Institute of Professional Bookkeepers, this account reflects the company's accumulated net income or loss, less cash dividends paid, plus or minus prior period adjustments from the date that the corporation began to the present. A statement of retained earnings breaks down changes to this account during the reporting period and is required by GAAP whenever comparative balance sheets are presented.