Answer:
Current Retained Earnings + Profit/Loss – Dividends = Retained Earnings
Step-by-step explanation:
Let’s say your company went into business on January 3, 2022. Your retained earnings account on January 3, 2022, will read $0 because you have no earnings to retain.
Now let’s say that in January you earn $5,000 in net income (from your income statement) and don’t issue any dividends.
That means that on February 3, your company’s retained earnings will be $5,000:
Current retained earnings + Net income - Dividends = Retained earnings
$0 + $5,000 - $0 = $5,000
This makes sense: you earned $5,000 in profits and retained all of them.
