In accounting, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers, Net income is equal to the Income that a firm has after subtracting costs and Expenses from the total Revenue. Dividends are payments made by a Corporation to its Shareholder members Similarly, if the corporation makes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings.
Retained earnings are reported in the shareholders' equity section of the balance sheet. In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances Companies with net accumulated losses may refer to negative shareholders' equity as a shareholders' deficit. A complete report of the retained earnings or retained losses is presented in the Statement of retained earnings or Statement of retained losses. The statement of retained earnings is one of the basic Financial statements as per Generally Accepted Accounting Principles, and it explains the changes in a company's
When total assets are greater than total liabilities, stockholders have a positive equity (positive book value). In accounting, book value or carrying value is the value of an asset or according to its Balance sheet account balance Conversely, when total liabilities are greater than total assets, stockholders have a negative stockholders' equity (negative book value) — also sometimes called stockholders' deficit. A stockholders' deficit does not mean that stockholders owe money to the corporation as they own only its net assets and are not accountable for its liabilities. It means that the value of the assets of the company must rise above its liabilities before the stockholders hold positive equity value in the company.
The decision of whether a firm should retain net income or have it paid out as dividends depends on several factors including, but not limited to the: