How to Calculate Retained Earnings on a Balance Sheet

Retained earnings refers to money a company has earned and not used for paying expenses or dividends. When finalizing your balance sheet, you need to know how to calculate the company's new retained earnings. Before you do so, you need to know the retained earnings from the previous year, the company's net income and the amount of money the company paid in dividends. The retained earnings plus the common stock value equal the shareholders' equity in the company.

Items you will need

• Calculator

Step 1Look up the retained earnings from the previous year. If the company is new, or had no retained earnings, use "$0" as the retained earnings amount.

Step 2Add the company's net income for the year to the retained earnings from the previous year. For example, if the company has $672,000 in prior year's retained earnings and had a net income of $350,000, add $672,000 to $350,000 to get $1,022,000.

Step 3Subtract the dividends paid by the company to find the company's new retained earnings on the balance sheet. Completing the example, if the company paid $200,000 in dividends, subtract $200,000 from $1,022,000 to find the new retained earnings equal $822,000.