Why are retained earnings not equal to cash
Revenue and retained earnings both appear on a company's financial statements, and both can give you a sense of how the company is performing. The difference between them boils down to profit.
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In very simple terms, revenue represents money that comes in the company's door, while retained earnings represents the money that doesn't go back out. Revenue is the money a company makes from its business activities -- selling goods and services, primarily.
The revenue that a company reports doesn't take any expenses into account. If Willie's Widget Corp. In business, "revenue" is sometimes just called "sales" -- and it is not the same thing as "income.
The amount of revenue a company reports in any period of time does not necessarily equal the amount of cash that comes in the door during that time. Publicly held companies keep track of their finances using the accrual method of accounting. In accrual accounting, a company reports revenue when it earns money, not when it actually receives that money.
For example, Willie's Widget Corp. It has fully earned the money.
A company's income statement starts with its revenue, often called the "top line. The result is net income, known universally as the "bottom line. Whatever it doesn't pay out in dividends, it keeps in the business as "retained earnings.
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As is the case with revenue, retained earnings does not necessarily equal cash on hand. Later on, of course, the machine will lose value. As it does so, that "depreciation" will be reflected as a reduction in retained earnings.
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Difference Between Income Statement vs. Cash Flow How to Calculate Unearned Revenue. Revenue Revenue is the money a company makes from its business activities -- selling goods and services, primarily.
Recognizing Revenue The amount of revenue a company reports in any period of time does not necessarily equal the amount of cash that comes in the door during that time. Retained Earnings A company's income statement starts with its revenue, often called the "top line. Nature of Retained Earnings As is the case with revenue, retained earnings does not necessarily equal cash on hand.
References 3 "Financial Accounting for MBAs," Fourth Edition; Peter Easton, et al; Investopedia: Popular Articles Difference Between Income Statement vs.
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