USA Retained earnings


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

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Because it represents the profit that belongs to the shareholders.
 
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I thought the profit belongs to the company, not the shareholders.
 

kirby

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The shareholders own the company. The company has earned a profit which can later be paid as dividends to the shareholders.
 
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The shareholders own parts of your company in different amounts. Hence, retained earnings are in shareholder's equity.
 
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Fidget

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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.
 

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