A:

Retained earnings appear on a company's balance sheet. Retained earnings may also be published as a separate financial statement and, although not typically, can be 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 retained earnings represent a company's remainder of earnings that are not paid out in dividends, they are often referred to as retained surplus

The statement of retained earnings is one of the financial statements that publicly traded companies are required to publish, at least, on an annual basis. 

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 = Beginning retained earnings + Net income - Dividends

If a company has a net loss for the accounting period, a figure greater than the beginning retained earnings, a company's retained earnings statement shows a negative balance or deficit.

The retained earnings statement shows the surplus, or retained profit, between accounting periods. The statement also delineates changes in net income over a given period, which may be as often as every three months, but must be produced annually. Since the statement of retained earnings is such a short statement, it can be listed sometimes 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 to be reinvested back in the company and how much is available to pay dividends to shareholders.

RELATED FAQS
  1. Which transactions affect retained earnings?

    Retained earnings is the cumulative total of earnings or net income that have yet to be paid to shareholders. Retained earnings ... Read Answer >>
  2. Are dividends considered an expense?

    Learn how dividends are accounted for and why cash or stock dividends on common or preferred shares are not considered an ... Read Answer >>
  3. How do I calculate the dividend payout ratio from an income statement?

    Understand the dividend payout ratio, how it differs from the dividend yield and how it can be calculated from a company's ... Read Answer >>
  4. How do earnings and revenue differ?

    Revenue is the total income earned by a company for selling its goods and services. Earnings are the bottom line on a company's ... Read Answer >>
Related Articles
  1. Investing

    Treasury Shares Wreak Havoc On Retained Earnings

    Aeropostale's retirement of 47.5 million shares in October is worth looking into.
  2. Investing

    12 things you need to know about financial statements

    Before investing, discover 12 characteristics of financial statements that can help you evaluate companies and increase your chances of choosing a winner.
  3. Investing

    Introduction To Dividends

    Investing in dividend-paying stocks can be an effective method of building long-term wealth.
  4. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  5. Financial Advisor

    How mutual funds pay dividends: An overview

    The process by which mutual fund dividends are calculated, distributed and reported is fairly straightforward in most cases. Here's a look.
  6. Investing

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  7. Investing

    What are Financial Statement Assertions?

    Understand financial statement assertions and what they mean in accounting. For investors, it is important that assertions be accurate.
RELATED TERMS
  1. Retained Earnings

    Retained earnings are the cumulative net earnings or profit of ...
  2. Statement of Retained Earnings

    The statement of retained earnings is a financial statement that ...
  3. Unappropriated Retained Earnings

    Unappropriated retained earnings refers to any portion of company ...
  4. Accumulated Earnings Tax

    The accumulated earnings tax is imposed by the government on ...
  5. Financial Statements

    Financial statements are written records that convey the financial ...
  6. Stockholders' Equity

    Stockholders' equity is the remaining amount of assets available ...
Trading Center