On this page
Use an explicitly simplified roll-forward
In a model with no prior-period adjustments or other retained-earnings movements, opening retained earnings 20 plus net income 15 less dividends 6 gives closing retained earnings 29. The assumptions matter when applying that roll-forward to an actual report.
Trace a use of previously earned cash
A company can use cash to buy equipment, repay borrowing or pay dividends. Those actions have different accounting effects, but none requires the cash balance to equal accumulated retained earnings.
Keep the balances separate in a reconciliation
| Balance | Amount | Classification |
|---|---|---|
| Cash | 18 | Asset |
| Retained earnings | 29 | Equity component |
| Total equity | 89 | Residual recognised interest |
Ask a cash question with cash information
To investigate payment capacity, use cash balances, expected collections, maturities and financing information. A retained-earnings number alone does not establish immediately spendable funds.