Retained earnings
From Wikipedia, the free encyclopedia
In accounting, retained earnings refers to the portion of net income from a period which is retained by the corporation, rather than distributed to its owners. Similarly, if the corporation makes a loss for the period, then that loss is retained.
They are reported in the Shareholders' equity section of the balance sheet. A complete presentation 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 or stockholders' equity. When Liabilities are greater than Assets, you have a negative stockholders' equity also sometimes called stockholders' deficit. Stockholders' deficit does not entail that stockholders owe money. 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 be 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.
