Retained Earnings

Retained earnings is a subsection of equity and it refers to the lifetime earnings of the company as of the end of the prior accounting year.  Once the year is closed, current earnings are added to all earnings to reset retained earnings.

Return on Equity

Return on Equity

Another performance ratio used in business is return on equity. It is similar to return on assets except return on equity uses one section of the bottom half of the balance sheet.

Financial Statements for the Small Business

Financial Statements

Financial statements serve the purpose of presenting economic activity and status related to a particular date and over a particular time frame. Accountants record monetary transactions and via financial reports present the information in an easy to understand format. The financial statements for a small business do not have to comply with those of publicly traded operations.

How to Read a Balance Sheet – Equity Section (Simple Format)

Stock

The equity section of the balance sheet equals assets minus liabilities. Traditionally the equity section is referred to as the net worth of the company. If you were to dispose of all the assets through a sale and pay off liabilities, the money left over would be available for distribution to the shareholders. The shareholders basically own the equity section of the balance sheet.