The aspect of the statement of retained earnings under the financial reporting services showcases the insights of the business equity towards the accounts over time. The measure of equity is taken towards the worth of the business that is calculated after adding the assets and taking away the other liabilities. This further assists the shareholders in giving them an idea about the investment. The said statement is further retained and stands as one out of four main financial statements that include a balance sheet, statement with respect to income for we can say income statement, and lastly a statement of cash flow. In order to maintain them properly you need to either hire an accountant or get outsourced accounting services for your business.
Retained Earnings under Financial Reporting Services
The statement of retained earnings helps investors analyze the company's earnings for shareholders and the amount they are leaving to reinvest. The analysis calculates retention using the business ratio, which is the plowback ratio, which includes net profits and contributions from business owners. Retention ratio can be calculated using the method (Net income-Dividends)/Net Income. A lower retention ratio may not necessarily be a bad one, but it depends on the comparison to other businesses in the same industry.
Retained Earnings Examples
The following provides an example that shows the statement earning through retained earnings concept comes under the accounting services.
Example 1
Apex Web Design, LLC
Statement of Retained Earnings
For the Year Ended December 31, 2020
|
Description |
Amount |
|
Retained earnings on December 31, 2019 |
$95,000 |
|
Net income for December 31, 2020 |
45,000 |
|
Dividends paid to shareholders |
- 15,000 |
|
Retained earnings on December 31, 2020 |
$125,000 |
Example 2
Company Apple, in the years 1995 and 2012 this company didn’t pay any dividends towards the investors and the retention ratio increased to 100%. In the year 2012, the company then started to pay for the dividends. But also had acquired a good portion of the earnings for the reinvestment in the product development. Thus the company maintains a retention of around 70-75%.
Essentials of Retained Earnings Under Accounting Services
The basis formula or structure of retained earnings that has been coming under our financial reporting services includes as follows:
|
Beginning Retained Earnings Plus Net Income Minus Dividends is Equal to the Ending Retained Earnings |
The statement of the retained earnings starts from the beginning of the balance sheet in that specific retained account and it increases the account from the net income or further decreases the net loss or decreases towards the accounts that are due dividends. The retained earning stands as a result of balances. Concept of retained earning is really important to learn, especially for those who are in the business industry. In order to maintain your financial statements properly make sure to take help of an expert professional who has knowledge about accounting and bookkeeping services.
Benefits of the Statement of Retained Earnings
Some of the key benefits of retained earning accounting services for businesses are discussed below:
- It shows how much of the net income is retained for reinvestment versus distributed as dividends.
- A growing retained earnings figure often suggests a company is reinvesting in its growth and financial stability.
- It allows investors to evaluate the company’s ability to generate profits over time and manage earnings effectively.
- By analyzing retained earnings, management can identify available funds for future projects and expansion.
- Investors can use the statement to compare a company’s retention practices against industry peers.
- It provides a clear view of how profits are being utilized, enhancing trust among investors and stakeholders.
- Helps in formulating long-term strategies by understanding historical earnings retention trends.
Preparation of the Retained Earnings Statement
One can further prepare for the retained earning statements by following the information given below or any outsourced accounting services provider can also do that on your behalf for your business:
- Open the Balance for Retained Earnings: This information can be found only in the previous year's balance sheet for the opening balance which is retained through the earned accounts present in the general ledger.
- Net Income from the Current Period: This stands as the bottom line for the income statement of the company.
- Payment of the Dividends: These are paid during the specific period that appears for the flow of the cash and other cash flow towards the financing activities included in the cash flow statement.
- Calculation through Formula: By using this formula, Net income-Dividends)/Net Income you can calculate the retained earning.
Conclusion
The Statement of Retained Earnings which are the part of Fino Partners financial reporting services as well as accounting services is a vital financial report that provides valuable insights into a company’s profitability and growth potential. The retained earning accounting service is an important tool for investors, management, and analysts, providing critical information about a company’s retained earnings trajectory and its approach to utilizing profits for long-term success. Understanding this statement can aid stakeholders in making informed decisions about investment, management practices, and strategic planning. Hence such statements need to be prepared very carefully with the help of an expert professional like Fino Praners.
