Are Retained Earnings Listed on the Income Statement?

Retained earnings are the cumulative net earnings or profit of a company after paying dividends. Retained earnings are the net earnings after dividends that are available for reinvestment back into the company or to pay down debt. Since they represent a company's remainder of earnings not paid out in dividends, they are often referred to as retained surplus.

Retained earnings are an equity balance and as such are included within the equity section of a company's balance sheet

Movements in a company's equity balances are shown in a company's statement of changes in equity, which is a supplementary statement that publicly traded companies are required to show. In this statement, a company would show the retained earnings at the beginning of the period, any items that have increased the retained earnings (for example net income), any items that have reduced retained earnings (for example, if a dividend has been declared) and the ending retained earnings. Both the beginning and ending retained earnings would be visible on the company's balance sheet. As such, the statement of changes in equity is an explanatory statement.

The calculation of retained earnings adds net income to beginning retained earnings for the period and subtracts dividends to be paid to shareholders. The formula is as follows:

Retained Earnings = R E + N I D where: R E = beginning retained earnings N I = net income D = dividends \begin{aligned} &\text{Retained Earnings} = RE + NI - D\\ &\textbf{where:}\\ &RE=\text{beginning retained earnings}\\ &NI=\text{net income}\\ &D=\text{dividends}\\ \end{aligned} Retained Earnings=RE+NIDwhere:RE=beginning retained earningsNI=net incomeD=dividends

If a company has a net loss for the accounting period, a company's retained earnings statement shows a negative balance or deficit. Alternatively, a positive balance is a surplus or retained profit.

The statement also delineates changes in net income over a given period, which may be as often as every three months, but not less than annually. Since the statement of retained earnings is such a short statement, it sometimes appears at the bottom of the income statement after net income.

Investors pay close attention to retained earnings since the account shows how much money is available for reinvestment back in the company and how much is available to pay dividends to shareholders.

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  1. U.S. Securities and Exchange Commission. "How to Read a 10-K."