What are Retained Earnings - Leigh Barker Accountant

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What are Retained Earnings

• Leigh Barker Accountant

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Profits generated to date less any dividends or
distributions paid.

• Retained earnings are the profits generated to
  date less any dividends or distributions paid.
  Retained earnings are reported in the balance
  sheet and the owners equity statement and are
  classified as an asset as it has a positive
  value.
• Retained earnings are not paid out as
  distributions or dividends but are retained by
  the business entity to be reinvested in core
  business activities or to pay down debt.

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From an accounting perspective..

• From an accounting perspective the retained
  earnings at the end of an accounting period
  become the opening retained earnings for the next
  reporting period which is either increased if
  there is a net profit or decreased if there is a
  net loss.
• Retained earnings are a reflection as to how a
  business has managed its profits and does not
  represent surplus cash available to the business.
  Retained earnings are important as it
  demonstrates what a business has done with
  profits.

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A business will use retained earnings to grow

• While a profitable business will expect a return
  by way of distributions or dividends there is
  also an expectation that a business will grow
  thus becoming more profitable. This means that a
  business will use retained earnings to grow.
• Retained earnings can fluctuate from one
  reporting period to another and while the general
  consensus is that revenue is the key driver, the
  other factors that have an affect are increases
  of decreases in items such as the cost of goods
  sold, administration costs, taxes, distributions
  or dividends.

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Leigh Barker Accountant

• Please note Prepared by Leigh Barker Accountant
  at MWC Group, Tangible Assets, Portfolio Finance,
  Gordon and West Pennant Hills.
• Note that all content of this blog is general in
  nature and anyone intending to apply the
  information to practical circumstances should
  seek professional advice to independently verify
  their interpretation and the informations
  applicability to their particular circumstance.