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A retained earnings (or deficit) account is a permanent (accumulated) balance sheet account that tracks an entity's net earnings that have not been paid out in the form of dividends. These net earnings are retained by the entity.

The amount of accumulated retained earnings is reduced by distributions to shareholders and transfers to additional paid-in capital for stock dividends. The balance of accumulated retained earnings may be less than zero; in this case, retained earnings may be referred to as retained deficit.

The basic formula for retained earnings is as follows:

  • Beginning of year retained earnings
  • Plus: Net income in current year OR Less: net loss in current year
  • Less: Dividends to shareholders in current year

The net result is end of year retained earnings.


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