Example of Retained Earnings and Forecasting

Retained Earnings note to the financial statements

Entrepreneurs planning on registering a corporation will use a Retained Earnings account, opposed to a sole proprietorship or a partnership using a capital account. The Retained Earnings account tallies all profits and losses incurred throughout the years as well as any dividends paid to the corporation's owners or shareholders.

The retained earnings note will summarize the activities expecting to take place in this account during each forecasted period. It should detail the beginning balance in the account, the net income after taxes (or net loss) for each forecasted business year, the dividends paid to the company's shareholders (owners) and the ending retained earnings account balances for each forecasted period. Below provides an example of a retained earnings note to the forecasted financial statements.

Retained Earnings Account:
The following items were used to calculate "THE INCORPORATED COMPANY's" December 31, 200X and 200Y ending retained earnings account.

200X 200Y
Beginning Retained Earnings $ 0.00 $ 8,000
Add: forecasted net income after taxes per year $15,250 $23,450
Less: Dividends paid to owners $ 7,250 $ 3,450
Equals: Ending retained earning account balance $ 8,000 $20,000

The ending retained earnings' balances ($8,000 and $20,000) can be seen under THE INCORPORATED COMPANY's forecasted balance sheets.


Categories: Financial