Retained earnings is a figure used by businesses to determine how much money they have either made or lost in a given period of time. If the retained earnings total is a positive number, it means the company made a profit, and if it is negative, it means the company incurred a loss.
Determine the period of time for which you want to calculate retained earnings. Retained earnings can be calculated for any period of time--daily, weekly, monthly, quarterly or yearly.
List all the financial transactions that took place during the period of time you are calculating retained earnings.
Make two columns, one for revenue or income and the other for expenses.
List all income receipts. This includes any source that the company has received income from. For example, sales, rental payments and interest payments are included in the revenue column.
List all expenses that were incurred and paid. This includes any money that was spent during the time period, including cost of goods sold, payroll, utilities and taxes.
Add the list of revenues, and label the sum as Total Revenue.
Add the list of expenses, and label the sum as Total Expenses. Remember to include any owner distributions that are paid out from the company's profits. The total expenses must include all money that was taken from the company.
Subtract the Total Expenses from the Total Revenue figure. The result is the Retained Earnings. This is the amount of money the company is either holding over to the next year or has lost throughout the year.