Financial Glossary
Ending Retained Earnings
Ending retained earnings is the cumulative amount of net income a company has kept rather than distributed to owners, measured at the close of a period. It is calculated by taking beginning retained earnings, adding net income (or subtracting a net loss) for the period, and subtracting any dividends or owner distributions. The resulting figure carries forward as the next period's beginning balance and appears in the equity section of the balance sheet.
Problem & Application
For owner-operated businesses, ending retained earnings is a running record of reinvested profit and a key signal lenders and buyers read when assessing financial strength. Owners who take frequent distributions need to track how those draws reduce retained earnings so the equity section stays accurate. A miscalculated balance, often from forgetting to subtract distributions, can throw off the entire balance sheet and complicate tax and loan filings.
In Short
Ending retained earnings ties net income and distributions together to show how much profit a business has accumulated and kept on its books.