As a business owner, you should strictly understand the difference between business profits and retained earnings. Retained earnings are the part of your business’s income which cannot be shared as a dividend among the owners. However, they can easily be reinvested back in your business in the future. They serve as a capital in your business and can also be used for paying taxes.
You can easily find all the information concerning your business’s retained earnings on the balance sheet in your equity section. As a rule, they are shown when the accounting period ends. All the changes in your retained earnings are reported in a special report at the end of every period.
The Aim of Retained Earnings
The main goal of retained earnings is to connect such vital aspects like income statement, and the balance sheet. Retained earnings can also be used for purchasing whatever is necessary for your company. Or, you can also use them for your company’s promotion, which will help you develop your company and scale it on another level. There can also be a force majeure situation where you need to invest money in your business, and this is when retained earnings will come in handy.
There are also some situations when the shareholders do not want to invest their money in retained earnings, thinking that it is worthless to do so; in such cases, retained earnings are shared among the shareholders.
When Does the Period of Retained Earnings Start?
As a rule, each of the periods of retained endings starts by the end of every accounting term and indicates on the balance sheet as earned revenue from the previous year. However, keep in mind that the Return Ending balance from prior accounting periods will be the retained earnings start-up balance in the following accounting cycle.
The Influence of Net Income on Retained Earnings
You should fully understand that all the changes within your business, concerning net income, will have a huge influence on your Retained Earnings balance. Any hesitations with your net income will directly impact not only your retained Earnings but also your income. As a rule, the same issues can have impacted both your income and your retained earnings. Among the factors that may have a negative effect on your revenue are sales revenue, cost of the products, deprecation, and some additional aspects.
The Impact of Dividends on Retained Earnings
As a rule, dividends can be shared among the owners in the form of cash or stock. Both aspects can have a negative influence on your Retained Earning value.
Once the Retained Earnings Period ends, you can start working on your final Retained Earnings balance. If you have any questions concerning Retained Endings, and other business inquiries such as sales tax or Utah business entity search, contact Prestige Auditors and our financial experts will help you solve all the financial issues within your business in order to increase both your revenue and your overall efficiency.