A company which has been trading for 4 years has made £10,000 in the last financial year and pays £8,000 in dividends.
The Statement of Financial Position shows the following:
Financed by:
Formula: $$\begin{array} { l r }
\text { Ordinary } £ 1 \text { shares } & £ 20,000 \
\text { Retained Earnings } & £ 8,000 \
\text { Revaluation Reserve } & £ 12,000
\end{array}$$
What is the meaning of "Retained Earnings"?

Question

A company which has been trading for 4 years has made £10,000 in the last financial year and pays £8,000 in dividends.
The Statement of Financial Position shows the following:
Financed by:
Formula: $$\begin{array} { l r } 
\text { Ordinary } £ 1 \text { shares } & £ 20,000 \
\text { Retained Earnings } & £ 8,000 \
\text { Revaluation Reserve } & £ 12,000
\end{array}$$
What is the meaning of "Retained Earnings"?

Quizplus · Accepted Answer

Retained earnings represent the cumulative amount of profits that a company has earned over its life, after paying out dividends. In this case, it indicates the profits that have been kept within the company rather than distributed to shareholders.

A Company Which Has Been Trading for 4 Years Has