Sources
Help build the largest human-edited directory on the web.
Submit a site - Become an editor
Wikipedia. Licensed under the GNU Free Documentation License.
Are you an expert in this subject? Join the discussion and share your knowledge at Wikipedia.org.
Retained earnings
From Wikipedia, the free encyclopedia
In accounting, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners. Similarly, if the corporation makes a loss, then that loss is retained. Retained earnings are cumulative from year to year.
Retained earnings are reported in the Shareholders' equity section of the balance sheet. A complete report of the retained earnings or retained losses is presented in the Statement of retained earnings or Statement of retained losses.
When assets are greater than liabilities, you have a positive equity (positive book value). When liabilities are greater than assets, you have a negative stockholders' equity—also sometimes called stockholders' deficit. Stockholders' deficit does not mean that stockholders owe money—they may safely go away from such a company. It just means that the value of the assets of the company will have to rise above its liabilities before the stockholders will reap any value (above zero) from owning the company's stock.
The decision of whether a firm should retain net income or have it paid out as dividends depends on several factors including, but not limited to the:
- tax treatment of dividends; and
- funds required for reinvestment in the corporation.