How To Calculate Retained Earnings

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How to Calculate Retained Earnings? Accounting University will show you basics of accounting through beautifully designed educational videos. Who says Accounting has to be boring?

Well corporations have savings account too. Only it is called Retained Earnings.

Let’s analyze these two words:

Retained + Earnings

Retained means “to keep”. Corporations retain their earnings from year to year to be used for different purposes.

What is Retained Earnings used for?

To pay out Dividends
Reinvest Earnings into other Business Ventures
Finance other areas of their Operations

Earnings is the amount of money earned through the regular course of business after all expenses are deducted.

Where is Retained Earnings Reported?

Retained Earnings is reported in the Stockholders Equity Section on the Balance Sheet.


So, How do we calculate Retained Earnings?

Here is the Equation:

Beginning Retained Earnings

Net Income
Dividends

= Ending Retained Earnings


The Ending Retained Earnings is the Value that is Reported on the Balance Sheet.


Now let’s Review:

What is Retained Earnings?

It is the amount of income earned through regular course of business that is retained from year to year.

Here is the equation revisited:

How to calculate retained earnings:

Beginning Retained Earnings

Net Income
Dividends

= Ending Retained Earnings

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