5 Steps to Calculate Retained Earnings

Introduction

Calculating retained earnings is crucial for small businesses to understand their financial health. Retained earnings represent the cumulative amount of net income that a company retains, rather than distributes to shareholders. Here’s how to calculate retained earnings in five simple steps using Boulder Invoice’s financial tools.

Step 1: Obtain the Opening Balance

Start with the opening balance of retained earnings from the previous accounting period. This figure is typically found on the company’s balance sheet.

Step 2: Add Net Income

Calculate your net income for the current period. Net income is the total revenue minus expenses, taxes, and costs. Boulder Invoice’s software can help automate this calculation, ensuring accuracy.

Step 3: Subtract Dividends

If your business pays dividends to shareholders, subtract the total amount of dividends paid during the period from the sum of the opening balance and net income.

Step 4: Adjust for Any Corrections

Make any necessary adjustments for prior period errors or corrections. This ensures your retained earnings calculation reflects the true financial position of the business.

Step 5: Calculate Retained Earnings

The final retained earnings are calculated by adding the net income and subtracting the dividends from the opening balance, along with any adjustments. Boulder Invoice’s software can streamline this process, providing accurate financial reports.

Conclusion

Calculating retained earnings manually can be complex and prone to errors. Boulder Invoice offers affordable financial tools that automate this process, ensuring accuracy and saving time. Use Boulder Invoice to manage your financial records efficiently and focus on growing your business.