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Retained Earnings definitions

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  • Retained Earnings
    Portion of net income from prior periods not distributed as dividends, often reinvested in business assets rather than held as cash.
  • Net Income
    Amount remaining after all expenses are subtracted from total revenues, increasing equity accounts such as retained earnings.
  • Dividends
    Distributions of profits to shareholders, reducing the balance of retained earnings when declared.
  • T-Account
    Visual representation of an account showing increases on one side and decreases on the other, used for tracking balances.
  • Base Formula
    Equation: beginning balance plus additions minus subtractions equals ending balance, used to track account changes.
  • Beginning Balance
    Amount present in an account at the start of a period, serving as the foundation for further calculations.
  • Ending Balance
    Final amount in an account after all additions and subtractions for a period have been accounted for.
  • Retained Deficit
    Negative balance in retained earnings, often resulting from accumulated losses or excessive dividend payments.
  • Equity
    Ownership interest in a company, increased by net income and decreased by losses or distributions like dividends.
  • Credit Balance
    Positive amount on the right side of an account, typical for equity accounts such as retained earnings.
  • Debit Balance
    Negative amount on the left side of an account, indicating reductions in equity or assets.
  • Additions
    Increases to an account, such as current period net income added to retained earnings.
  • Subtractions
    Decreases to an account, including dividends and net losses deducted from retained earnings.
  • Assets
    Resources owned by a company, which may be purchased using retained earnings rather than holding cash.
  • Net Loss
    Situation where expenses exceed revenues, resulting in a decrease to retained earnings.