USA Retained earnings

[Anaya]

I would like to know why is retained earnings in the shareholders’ equity.

 

[kirby]

Because it represents the profit that belongs to the shareholders.

 

[Anaya]

I thought the profit belongs to the company, not the shareholders.

 

[kirby]

The shareholders own the company. The company has earned a profit which can later be paid as dividends to the shareholders.

 

[Anaya]

Thanks for the clarification.

 

[JustinC]

The shareholders own parts of your company in different amounts. Hence, retained earnings are in shareholder's equity.

 

[Anaya]

The shareholders own parts of your company in different amounts. Hence, retained earnings are in shareholder's equity.

So shareholders earn the profit and the dividend?

 

[Fidget]

So shareholders earn the profit and the dividend?

No. The company earns the profit. Shareholders are entitled to a share of that paid out via dividends, assuming that the company pays out a dividend. It is not compulsory for the company to do so and it all depends on the performance of the company along with other factors that basically mean a dividend will be paid out if the company can afford to do it without jeopardising its ability to continue as a going concern.