This video discusses the difference between Retained Earnings and Net Income.
Net Income is the profit that a company earned over a set period of time, such as a month, quarter, or year. Net Income is presented on the Income Statement.
Retained Earnings is the accumulated profits of the company since its inception, minus any dividends distributed. Retained Earnings thus represents profits that have been reinvested in the business. Retained Earnings appears in the Stockholders’ Equity section of the Balance Sheet.
Retained Earnings and Net Income are related in that Net Income increase Retained Earnings. For example, let’s say you start a company today and in your first year of business post a Net Income of $40,000. If you don’t distribute any dividends, your Retained Earnings at the end of the first year will be $40,000. If you then post a Net Income of $30,000 in your second year of business and again do not declare a dividend, your Retained Earnings balance will be $70,000 at the end of year 2.