A company's retained earnings can be found in the business' reported balance sheet or in the company's internal general ledger closing statement. Stockholders can find the value of the company's retained earnings in the stockholder's equity portion of the business' reported balance sheet. When a fiscal year ends and the bookkeeper or accountant closes the books, both company revenues and expenses are noted in the income summary, and the retained earnings are derived from the difference between the two items.Continue Reading
When revenue, which is a positive value, and expenses, which is a negative value, are combined into a reported retained earnings figure, stockholders are able to see the full results of what management was able to achieve during the reporting period. Retained earnings represent one of the two main components of stockholder equity. The other component is contributed capital, also called capital stock, and represents the shareholders' investment into the company. These two components of stockholder equity should be reported separately in the balance sheet so that the shareholders can see where the equity comes from.
Several factors can decrease a company's retained earnings, such as paid dividends, a loss or adjustments made to compensate for a previous reporting period's overstatement. Retained earnings can be increased by circumstances, such as a change in the accounting principle, net income or an adjustment made to compensate for an understatement in a previous reporting period.Learn more about Financial Calculations