What Are Accumulated Profits or Retained Earnings?

What Are Accumulated Earnings & Profits | Accounting Clarified

Accumulated profit/retained earnings is a component of shareholder’s equity and represents the cumulative amount of a company’s profit since its inception after adjustments for dividend payments and transfer to other reserves.

Example:

A company started its operations in the year 2013. The company’s earnings and profit distributions for the last 3 years are as follows:

Year

Profit / (Loss)

Dividend Announced

2013

$ 60,000

$ 30,000

2014

$  (20,000)

Nil

2015

$ 150,000

$ 75,000

The company’s accumulated profits over the 3 years period will be as follows:

Year  2013

Opening Accumulated profit

Add: Profit for the year

60,000

Less: Dividend for the year

(30,000)

30,000

Year 2014

Opening Accumulated profit

30,000

Add: Profit for the year

(20,000)

Less: Dividend for the year

Closing Accumulated Profit

10,000

Year 2015

Opening Accumulated profit

10,000

Add: Profit for the year

150,000

Less: Dividend for the year

(75,000)

Closing Accumulated Profit

85,000

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