What is Retained Earnings Anyways?
Simply put, retained earnings is money kept within the business.
Retained earnings is a cumulative representation of your business income that has been (and is currently being) reinvested back into the business. This means the number will continue to grow over time. This also means that it does not include any outgoing money leaving the business used to pay owners or pay dividends.
For all you math people out there, here is how to calculate retained earnings:
Retained Earnings = Beginning Retained Earnings + Net Income - Owner Draws/Dividends Paid
Why track retained earnings? It's a good way to measure business value (plus, it is something that investors will definitely want to see). Generally speaking, it signifies the financial health of your business from year-to-year as well as throughout its lifespan. Remember it is a cumulative number!
Where do you find it? Retained earnings is found on the balance sheet under the 'shareholder's equity' section. At the end of each accounting year, retained earnings are calculated using the formula above. This number will either increase or decrease the accumulated retained earnings by however much was retained (or not retained) during the year.
If you have any other questions about retained earnings, or any other accounting concepts, feel free to reach out!