What is mean by Retained Earnings?
- Retained earnings are the portion of a company’s profit that is held or retained and saved for future use. Retained earnings could be used for funding an expansion or paying dividends to shareholders at a later date.
- Retained Earnings (RE) are the portion of a business’s profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment back into the business. Normally, these funds are used for working capital and fixed asset purchases (capital expenditures) or allotted for paying off debt.
- Retained Earnings are reported on the balance sheet under the shareholder’s equity section at the end of each accounting period. To calculate RE, the beginning RE balance is added to the net income or loss and then dividend payouts are subtracted. A summary report called a statement of retained earnings is also maintained, outlining the changes in RE for a specific period
The Purpose of Retained Earnings
Retained earnings represent a useful link between the income statement and the balance sheet, as they are recorded under shareholders’ equity, which connects the two statements. The purpose of retaining these earnings can be varied and includes buying new equipment and machines, spending on research and development, or other activities that could potentially generate growth for the company. This reinvestment into the company aims to achieve even more earnings in the future.
If a company does not believe it can earn a sufficient return on investment from those retained earnings (i.e., earn more than their cost of capital), then they will often distribute those earnings to shareholders as dividends or share buybacks.
The steps are to create the Retained Earnings in Fresa Gold.
1. First Login with Fresa Gold, Navigate to Accounts, select Account Settings (Fig.1).
2. Second, select COA Master (Chart of Accounts) to create the Retained Earning ledger(Fig.2)
3. Once selected, it will reflect the Chart of Account list, click Create button to create a new ledger (Fig.3).
4. Enter the mandatory fields like Code, Name, Status, is BS/PL, DR/CR, Category, Group, Type and Currency, once enter click Save button (Fig.4)
5. Finally, now the Retained Earning ledger is created. (Fig.5).
I hope you got an idea about to create the Retained Earning ledger for further clarification, send your queries to Support@fresatechnologies.com because our motto is to help customers.
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