Moneyzine
Contents
/Investment Guides /Statement of Retained Earnings

Statement of Retained Earnings

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 21st, 2023
Advertiser Disclosure

Definition

The financial accounting term statement of retained earnings refers to a financial report used by companies to reconcile the starting and ending balance of retained earnings. Typical line items in this statement would include operating loss or profit, dividends, and any redemption of common stock.

Calculation

Ending Retained Earnings = Beginning Retained Earnings − Dividends + Net Income

Explanation

Also known as the Statement of Retained Earnings and Stockholder's Equity, the purpose of this report is to explain the changes to retained earnings in the current accounting period. The statement of retained earnings uses information from the income statement and provides it to the balance sheet since retained earnings is a critical component of owner's equity.

Whenever evaluating the financial condition of a company, the statement of retained earnings should be examined alongside the income statement. This provides the reader or analyst with a more complete understanding of the company's profitability. The descriptions appearing in this statement will often refer to items that directly affect net income.

In addition to beginning and ending balances, net income and dividends, this report may contain certain irregular items such as the correction of accounting errors, which accounting practices requires the company to report as a prior period adjustment.

Example

Company A's income statement indicates net income of $4,283,000, dividends of $1,550,000, and a beginning balance of $28,348,000 in retained earnings. Company A did not have any irregular items. The statement of retained earnings for Company A would be as follows:

Company A
Statement of Retained Earnings
Retained Earnings, January 1, 20XX28,348,000
Add: Net Income4,283,000
Less: Dividends Paid1,550,000
Retained Earnings, December 31, 20XX31,081,000

Related Terms

income statement, net income, retained earnings, extraordinary items, dividends, unappropriated retained earnings, appropriated retained earnings, diluted earnings per share

Explore Investing Further

Related Content

  • Biden Or Trump: Who Is Better For The Economy And Stocks?
    Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
    March 19th, 2024
  • When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
    March 14th, 2024
  • DRIP Brokers: Best Brokers for Dividend Investing for November 2024
    Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
    March 12th, 2024
  • How To Invest in Real Estate Without Becoming a Landlord
    We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
    March 6th, 2024
  • Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
    ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
    February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.