Liquidating corporation with negative equity
What happens to retained earnings during the resolution depends on the financial state of the firm.
The company could operate under those conditions if its assets are turning to cash before the liabilities need to be paid.
During 2012 the company's expenses exceed revenues by 5,000 and there were no draws or additional investments by the owner.
The owner's equity at the end of 2012 would be a negative ,000.
Each year the firm declares a profit and does not distribute such profits, the retained earnings account grows.
However, a positive balance in the retained earnings balance does not mean that the firm has a corresponding amount of cash on hand.