Retained earnings refers to the portion of a company's net income that is retained by the company rather than distributed to shareholders as dividends. Retained earnings accumulate over time and represent undistributed profits that have been reinvested in the business to fund operations, future growth, or pay down debt. A company calculates its retained earnings for a period by taking the previous period's retained earnings balance, adding net income and subtracting any dividends paid out.

1. RETAINED EARNINGS
Santosh Hegde – 54
Vivek Prajapati – 55
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2. RETAINED EARNINGS – DEFINITION

In accounting, retained earnings refers to the portion of net income,
which is retained by the corporation rather than distributed to its
owners as dividends.

Similarly, if the corporation takes a loss, then that loss is retained and
called variously retained losses, accumulated losses or accumulated
deficit.

Retained earnings and losses are cumulative from year to year with
losses offsetting earnings.
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3. RETAINED EARNINGS
Instead of distributing the entire profits to the shareholders, company
retains some profits for the purpose ofAccumulations of earnings
Investment in fixed assets
To meet working capital needs
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4. MERITS OF PLOUGING BACK OF PROFITS
TO THE COMPANYEconomical
Efficiency and productivity
Confidence of shareholders
Enhances creditworthiness
Less financial risk
Reduce the reliance
 Helps expansion and diversification
Helps automation and
modernization
Used to meet working capital needs
Follows a stable dividend policy
Repayments of debentures & term
Freedom to take their own decisions
loans
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5. MERITS OF PLOUGING BACK OF PROFITS (Cont…)
TO THE SHAREHOLDERS-
TO THE SOCIETY-
Appreciation in share values
Increases capital formation
Bonus shares
Helps speedy development
Regular dividends
Benefits to the consumers
Security value
Social welfare of activities
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6. RETAINED EARNINGS – SYNOPSIS
Retained earnings are reported in the shareholder’s equity section of
the balance sheet.
 Companies with net accumulated losses may refer to negative
shareholder’s equity as a shareholder’s deficit.
 A complete report of the retained earnings or retained losses is
presented in the statement of retained earnings or Statement of
Retained Losses.
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7. FOR EXAMPLE
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8. RETAINED EARNINGS – CALCULATION
The calculation is:
+ Beginning retained earnings
+ Net Income during the period
- Dividends paid
= Ending retained earnings
The retained earnings formula is also known as the retained earnings
equation
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9. FOR EXAMPLE

For e.g., ABC International has $500,000 of net profits in its current
year, pays out $150,000 for dividends, and has a beginning retained
earnings balance of $1,200,000. Its retained earnings calculation is:

+ 1,200,000 Beginning retained earnings
+ 500,000 Net income
- 150,000 Dividends
= 1,550,000 Ending retained earnings
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