Skip to main content
        • BUSINESS TYPES

          Small Businesses

          For those businesses are just getting started and have less history. Typically 1-20 employees.

          Midsize Businesses

          For those businesses who've been at it for a while, and are between 21-500.

        • INDUSTRIES

          Construction

          For construction companies looking to streamline budgeting and expense management processes.

          Technology

          For fast-paced software businesses that need a platform that can keep up with their growth.

          Accounting Firms

          For accounting firms to streamline the spend and expense management of your clients making life easier for you and them.

          E-commerce and Retail

          For e-commerce and retail companies that value uninterrupted advertising for their campaigns.

          Healthcare

          For healthcare providers to increase control over their finances with minimal time investment.

        • OVERVIEW

          corporate card
          Business Credit

          Fast and flexible credit for businesses of all sizes. Apply for a credit line in minutes.

          spend management
          Spend Management

          Budgeting software that helps you take control of your budgets and spend smarter.

          expense management
          Expense Management

          Expense management software that helps to simplify and streamline your expenses.

          ap management
          AP Automation

          Intelligent accounts payable software that reduces time spent on AP by 50%.

        • FEATURES

          Virtual Cards

          Protect your business from fraud and overspending with Divvy virtual cards.

          Reimbursements

          Out-of-pocket expenses, card spend, and reimbursements all in one system.

          Rewards

          Every Divvy customer qualifies to earn rewards from their card spend.

          Credit Builder

          The pay-as-you-go program for businesses that need to build credit.

          Accounting Integrations

          Preserve your accounting processes with our built-in software integrations.

          Mobile App

          4.7/5 rated mobile app that brings budgets, virtual cards, and more into a single app.

          Reporting and Insights

          Catch abnormalities and keep your teams accountable with Divvy's reporting tools.

          Payments Services

          Streamline your payables process with Divvy's free vendor payment solution.

Financial statements can provide insight into the way you manage your organization in the long term. Lenders and investors may want to see a statement of retained earnings for your company, so we’ll walk you through everything you need to know about these short—but important—documents.

What is a statement of retained earnings?

A statement of retained earnings shows changes in net income or profit after dividends are paid out to shareholders. This amount can then be reinvested into the business, or retained for the following year.

Retained earnings can indicate what your company does with profits, how much is paid out to shareholders, and how much is retained over time.

Typically this statement covers a period of one year, but it can also cover a quarter, a month, or any period you want, as long as that amount of time is made clear in the statement. If you are an established company, investors and creditors will likely want to see your statements going back several years. 

Why are retained earnings important?

Why do you need to keep track of retained earnings? Potential lenders and investors will want to see a statement so they can make sure your business is profitable enough to repay any debts you take on. Creating a business budget can help reduce areas of overspending to be able to increase retained earnings. 

In addition, there are other benefits of creating a statement of retained earnings. It offers insights into your business’s accumulated earnings, and shows how much you can reinvest in your business each year. 

How to calculate retained earnings

The retained earnings formula is straightforward:

Beginning retained earnings + net income – dividends = retained earnings

If you did not have a net income for the year and instead had a loss, you would subtract that loss instead of adding an income. Your dividends include both cash dividends and stock dividends. If this is your first year of business, your beginning retained earnings would be zero. 

Want more details? Check out the steps below. 

How to prepare a statement of retained earnings

If you don’t have a finance team to create the statement for you, don’t worry, we’ve got your back. You can work with your accountant to create a statement following five simple steps: 

Step 1: Gather your balance sheet and income statements

Having these items on hand will help the rest of the process go smoothly. If you have previous statements of retained earnings, those will help too. 

Step 2: Determine the financial period for this statement

This can be a year, a quarter, or any other period necessary for the project. Make sure the time period is clearly stated in your final document. 

Step 3: Record the beginning retained earnings

This is also called the previous period’s balance. If you’ve made a statement of retained earnings for your business in previous periods, this is the final number you arrived at in that statement. If you have a brand new business, then your beginning retained earnings stands at $0. 

Step 4: Add your business’s net income

This is where your balance sheet and income statements come in. If you had a net loss during this period, subtract it instead. 

Step 5: Subtract dividends paid to shareholders

If the business is not publicly traded, then this amount should indicate the dividends paid out to the owner of the company, or to other investors. 

Once you’ve subtracted dividends, you’ll have your final statement of retained earnings. 

What it might look like

Let’s look at a possible example of a statement of retained earnings for one year.

If your beginning retained earnings were $100,000, and your net income for the year was $60,000, and your paid dividends were $8,000, then the formula would look like this: 

$100,000 + $60,000 – $8,000 = $152,000

In this situation, your retained earnings for the year would be $152,000. You can use this amount to reinvest in new equipment, property, employees, or anything you think will contribute to the success of your business. 

Before you bring your statement of retained earnings to lenders, build up your credit with Divvy. With Divvy, it’s easy to access the credit you need, no matter how big or small your company may be. 

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.

Leave a Reply

Close Menu