What Is an Earnings Statement?
Depending on state law, an earnings statement also known as a pay stub or pay slip is a payroll document that employers are required to give to workers on or before each payday. It provides a clear explanation of how an employee's compensation was determined for a given pay period.
Earnings statements aid in proving correct wage payment, tax withholding, and overtime computations from a compliance standpoint. Because they confirm employment and income, they are also commonly used by workers when they apply for credit, loans, or mortgages.
A typical U.S. earnings statement includes:
- Gross earnings (total pay before deductions)
- Net pay (take-home pay after deductions)
- Payroll deductions, such as federal income tax, state tax, Social Security, and Medicare
- Hours worked, including regular and overtime hours
- Overtime pay, if applicable under federal or state law
- Year-to-date (YTD) totals for earnings and deductions
For employers, accurate earnings statements support payroll tax reporting, including IRS filings such as Form 941 and Form W-2.
What Is a Retained Earnings Statement?
The retained earnings statement is a financial report that shows how much net income was retained in the business over some time and explains why the retained earnings changed. Retained earnings are a form of net income that the company retains for use within the company and are not distributed to the business's owner(s) or shareholder(s). It can be beneficial for business owners, investors, lenders, and management to use this statement to measure the amount of profit that has been reinvested back into the business through operations, paid down the debt, or distributed to the owner(s)/shareholder(s) as dividends.
A retained earnings statement generally includes:
- Beginning retained earnings balance
- Net income or net loss for the period
- Dividends declared or distributions paid
- Ending retained earnings balance
For corporations, retained earnings play a key role in financial planning and are closely reviewed during audits, loan applications, and investor evaluations.
How to Prepare a Statement of Retained Earnings
Accurate accounting records and consistency with the business's financial statements are necessary for creating a retained earnings statement.
The typical procedure is as follows:
- Begin with the initial balance of retained earnings. : This number is derived from the retained earnings statement or balance sheet for the previous period.
- Subtract net loss or add net income : Utilize the net income amount from the income statement for the current period.
- Deduct owner distributions or dividend: Add any distributions made during the period or dividends authorized by shareholders.
- Determine the final retained earnings : The outcome shows the balance of retained earnings at the conclusion of the reporting period.
- Get the statement ready.: Clearly and chronologically display the starting balance, net income or loss, dividends, and ending balance.
The retained earnings statement may be issued as a standalone report or included within the balance sheet. Most businesses prepare it annually, though some generate it quarterly based on internal reporting or lender requirements.