February 2007
Intermediate to advanced
288 pages
6h 32m
English
book
Crash Course in Accounting and Financial Statement Analysis, Second Edition
by Matan Feldman, Arkady Libman
Content preview from Crash Course in Accounting and Financial Statement Analysis, Second Edition
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Retained Earnings
These are cumulative earnings (net of dividends) over a company’s entire existence, which have been withheld within the firm and not distributed to the shareholders. This serves as an important link between the balance sheet and the income statement, allowing net income every year to flow through to the balance sheet.
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Retained Earnings = (Net Income - Dividends)1 + (Net Income - Dividends)2 + (Net Income - Dividends)3 + ... + (Net Income - Dividends)t |
Retained Earnings Is a Crucial Link between Income Statement and Balance Sheet
Recall the lemonade stand example: Retained earnings on the company’s balance sheet increased by $30 from January 1, 2005 to December 31, 2005; that represents the $30 in net income that was generated during the year (Exhibit 6.22).
Exhibit 6.22. The Retained Earnings Account is a Crucial Link Between the Balance Sheet and the Income Statement
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