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Old 10th January 2019, 10:43 PM   #1
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Join Date: May 2010
Location: Detroit, MI
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Default Why Is Statement Of Retained Earnings Important For Small Business?

One of the most important financial and accounting concepts to be aware of when it comes to your company is retained earnings. Retained earnings can be seen as a business savings account that can grow or decrease, based on financial decisions. Mathematically, retained earnings are determined by:

Retained earnings = Net income Ė dividends + beginning retained earnings balance.

Letís assume this business scenario. A company currently has $10,000 in beginning retained earnings along with $7,000 in profit. During this set time the company paid $4,000 in dividends. Using the formula, the companyís current retained earnings value would be $13,000. ($7,000 Ė $4,000 + $10,000).

Itís important to note that retained earnings are not the same as net income, also known as revenue. Instead, retained earnings are based on a companyís total profit along with other factors. Retained earnings are a historical count of net earnings that havenít been paid out to shareholders.

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