Net income is equal to revenues minus expenses. Corporate net income minus dividends declared is equal to that corporation's change to its retained earnings due to the company's running of its operations for the period. Retained earnings is an account that records the accumulated profits that the corporation has reinvested into its operations rather than distribute as dividends.

In contrast, net-cash flow is the total change in the business' cash and cash equivalents due to its operational expenses for the period. Since retained earnings has no connection to net-cash flow, it does not appear on the cash-flow statement that lists all changes in cash and cash equivalents for the period.

Instead, retained earnings has its own separate financial statement called the retained-earnings statement. Find the business' net income for the period.

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Net income is equal to revenues minus expenses and is the bottommost listing on the corporation's income statement. Deduct the dividends declared from net income to calculate the change in retained earnings. Dividends tend to be declared on a per-share basis.

What Is an Increase in Retained Earnings in a Cash Flow Statement? | Your Business

Find the retained earnings at the start of the period. Retained earnings is listed on the balance sheet and is one of the most-prominent entries in the equity section. Most often, it is listed after capital stock.

Add the change in retained earnings to retained earnings at the start of the period. Record the change to retained earnings as the net income account being wiped clean, the change added onto retained earnings, and the difference recorded under dividends payable. Alan Li started writing in and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto.

He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute. Skip to main content. References 3 IAS Plus: IAS 1, Presentation of Financial Statements AccountingCoach: What is Retained Earnings?

About the Author Alan Li started writing in and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto.

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