How to Determine Retained Earnings on Financial Statements

Determining retained earnings onfinancial statementsis an important task for any business. Retained earnings are the profits that a company has earned and kept over time. These earnings are important because they can be used to fund future growth or to paydividendsto shareholders. In this article, we will discuss the steps involved in determining retained earnings on financial statements.

What are retained earnings?

Retained earnings are the portion of a company's net income that is kept by the company rather than distributed as dividends to shareholders. Retained earnings represent the profits that a company has earned over time and can be used for a variety of purposes such as reinvesting in the business, paying off debt, or paying dividends to shareholders.

How to determine retained earnings?

Retained earnings can be determined by examining a company's financial statements. The statement of retained earnings shows the changes in retained earnings over a period of time. To determine retained earnings, you need to first examine the company's income statement andbalance sheet.

The income statement shows the company's revenues, expenses, and net income for a period of time. Net income is calculated by subtracting expenses from revenues. If a company has a net income, it means that it has made a profit. If a company has a net loss, it means that it has lost money.

The balance sheet shows the company's assets, liabilities, and equity at a specific point in time. Retained earnings are a part of the company's equity. To determine retained earnings, you need to look at the beginning balance of retained earnings and then add the net income for the period. You then subtract any dividends paid to shareholders during the period. The resulting number is the ending balance of retained earnings.

Why are retained earnings important?

Retained earnings are important because they can be used to fund future growth or to pay dividends to shareholders. If a company wants to expand its operations or invest in new projects, it can use its retained earnings to do so. Retained earnings can also be used to pay dividends to shareholders. By paying dividends, a company can reward its shareholders for their investment in the company and help to attract new investors.

Conclusion

Determining retained earnings is an important task for any business. Retained earnings represent the profits that a company has earned over time and can be used for a variety of purposes such as reinvesting in the business, paying off debt, or paying dividends to shareholders. By examining a company's financial statements, you can determine its retained earnings and gain insight into its financial health.