What is the simple formula for figuring Addition to Retained

Solution

Retained earnings is the amount of money that the company keeps aside for future. The aim of a company is to maximize the wealth of the shareholders. The company provides dividends to the shareholders to maximize their wealth. The retained earnings is calculated by subtracting the dividends feom the net income. The amount of money that is left after the dividends are paid is known as retained earnings. Any addition to retained earnings will be identified by the increase in the value of the net income or decrease in the value of the dividends. The addition of retained earnings will be clear when the dividends are less and net income is more.

Retained earnings = net income - dividends