1. What is Retained Earnings?

Retained earnings represent the cumulative net income of a company that has been retained (not distributed as dividends) since its inception. It's a key component of shareholders' equity on the balance sheet and reflects the company's reinvested earnings.

2. How Does the Calculator Work?

The calculator uses the basic retained earnings formula:

Where:

• Beginning Retained Earnings — The retained earnings balance at the start of the period
• Net Income — The company's profit during the period (can be positive or negative)
• Dividends — Cash or stock dividends paid to shareholders during the period

Explanation: The formula shows how retained earnings change over an accounting period based on profits and distributions to shareholders.

3. Importance of Retained Earnings Calculation

Details: Retained earnings are crucial for assessing a company's financial health, growth potential, and dividend policy. They represent funds available for reinvestment in the business, debt repayment, or future dividends.

4. Using the Calculator

Tips: Enter all values in dollars. Beginning retained earnings and dividends must be positive numbers. Net income can be positive (profit) or negative (loss).

5. Frequently Asked Questions (FAQ)

Q1: Can retained earnings be negative?
A: Yes, negative retained earnings (accumulated deficit) occur when cumulative net losses and dividends exceed cumulative profits.

Q2: Where do I find beginning retained earnings?
A: It's listed in the equity section of the previous period's balance sheet.

Q3: What's the difference between retained earnings and net income?
A: Net income is profit for one period, while retained earnings are cumulative over the company's lifetime.

Q4: Do all companies have retained earnings?
A: Only corporations have retained earnings. Sole proprietorships and partnerships use owner's equity accounts.

Q5: How often should retained earnings be calculated?
A: Typically at the end of each accounting period (monthly, quarterly, annually).