What is the retained earnings account?

Question

What is the retained earnings account? What is its purpose? What does it represent? Is it an investment or is it financing?

please explain your answers, thank you

Answer 1

Retained earnings are profits kept buy a company that are not distributed to shareholders. Sometimes if a company has a large profit they will give some to stock holders in the form of dividends, however they arent required to do so, and if they choose not to, then that profit is referred to as retained earnings, and is usually used for future projects for the company.

Answer 2

If you're saying the company just started business as in it's Day One, you cannot make a statement of retained earnings yet, you have nothing to put on it because there are no transactions yet. On the other hand, if you mean your the company has just started business and it has completed it's first year of operation, you would certainly have no beginning balance of retained earnings in your statement. Your statement of retained earnings would be comprised of your net income for the year less dividends given.

Answer 3

Retained earnigs are just that. It is profit, which is simply "kept."They look impressive to the shareholders.

Picture the spare 10 dollar bill hidden in your wallet. In a cyclical busines, it might be kept for a downturn, used to pay off debts not yet due, pay for improvements, or,'just held on to until needed."
Consider it money for "internal financing."
It';s there. so you don't have to borrow from the outside.

Good luck.