What happens to retained earnings when transaction fees are incurred?

Retained earnings represent the cumulative profits that a company has reinvested in the business rather than distributed as dividends to shareholders. When transaction fees are incurred, they are typically considered an expense related to operations. This expense reduces the net income for the period in which it occurs. Since retained earnings are calculated as prior retained earnings plus net income (or minus net losses), any reduction in net income due to transaction fees will directly result in a decrease in retained earnings.

This reflects the fundamental accounting principle that expenses decrease profits, which in turn affects how much profit is available to be retained in the business. Therefore, when transaction fees are incurred, they decrease retained earnings as they contribute to the overall expenses in the income statement.