From the course: Financial Accounting Part 2

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Forecasted retained earnings

Forecasted retained earnings

From the course: Financial Accounting Part 2

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Forecasted retained earnings

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- All right, now where am I going to get all the money to do all these things that I've got in my mind for next year? Well, one source of financing, one very attractive source of financing is internally generated profits. Accountants call that retained earnings. So take a look here. Last year was year one, and at the end of last year, our retained earnings were $60. What that means is that $60 from the start of the company until the end of year one, that was the total amount of profits generated by this company and kept within the company, not distributed to investors as dividends. That's $60. Now that carries forward into year two. We start year two with $60 in retained earnings that have been generated through prior years clear back to the beginning of the company. How is the retained earnings amount going to change in year two? Well, in year two, we're going to generate more profits. How much more? Well, we…

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