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The retained earnings (also known as plowback [1]) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period.
The statement explains the changes in a company's share capital, accumulated reserves and retained earnings over the reporting period. It breaks down changes in the owners' interest in the organization, and in the application of retained profit or surplus from one accounting period to the next.
For a corporation, the owner's equity portion usually shows common stock, and retained earnings (earnings kept in the company). Retained earnings come from the retained earnings statement, prepared prior to the balance sheet. Statement of retained earnings (statement of changes in equity)
EBIT (earnings before interest and taxes) = operating profit + interest income + other non-operating income; EBT (Pretax profit, earnings before taxes) = EBIT − interest expenses − other non-operating expenses; Net profit = EBT − tax; Retained earnings = Net profit − dividends; Another equation to calculate net income:
Accumulated other comprehensive income is a subsection in equity where "other comprehensive income" is accumulated (summed or "aggregated"). The balance of AOCI is presented in the Equity section of the Balance Sheet as is the Retained Earnings balance, which aggregates past and current Earnings, and past and current Dividends.
The income and retained earnings of the accounting equation is also an essential component in computing, understanding, and analyzing a firm's income statement. This statement reflects profits and losses that are themselves determined by the calculations that make up the basic accounting equation.