Question

With reference to business finance, explain the following:

Retained earnings

Answer 1

• Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors.
• This amount is adjusted whenever there is an entry to the accounting records that impacts a revenue or expense account.
• A large retained earnings balance implies a financially healthy organization.
• The formula for ending retained earnings is:
  Beginning retained earnings + Profits/losses – Dividends = Ending retained earnings.