How to work out retained earnings. Watch

DQd
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I'm a bit confused of exactly what retained earnings consists of.

I start with 20k.
Say I bought £10k worth of goods.
I sell £8k of the goods at a price of £20k, so I have £2k in inventory.
The cost of distributing these goods is £500.
I pay wages to people doing the sales, say £500.

What is the retained earnings (under equity)?

Do we include wages and the distribution cost in this and why?
(I think we don't for COGS)
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DJKL
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Work out the profit, add to opening capital, result closing capital.

Sales 20,000

Open Stock 0
purchases 10,000
Closing stock-2,000

Cost Goods Sold 8,000

Gross Profit 12,000
wages - 500
Distribution - 500
Net Profit 11,000

Bank open 20,000
Sales 20,000
Purchases -10,000
Wages -500
Distribution -500
Closing 29,000

Final Balance Sheet-Check

Stock 2,000
Bank 29,000
Assets 31,000

Opening capital 20,000
profits 11,000
Total 31,000

Do T accounts or similar to work it through, every debit has a credit being the maxim.
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2710
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(Original post by DQd)
I'm a bit confused of exactly what retained earnings consists of.

I start with 20k.
Say I bought £10k worth of goods.
I sell £8k of the goods at a price of £20k, so I have £2k in inventory.
The cost of distributing these goods is £500.
I pay wages to people doing the sales, say £500.

What is the retained earnings (under equity)?

Do we include wages and the distribution cost in this and why?
(I think we don't for COGS)
Retained earnings is accumulated profits.

Assuming you have 0 REs bf, ie new business, then your RE at year end is just your profits (less dividends).

So your profits are:

20k Income
(8k) CoS
(1k) Other costs

11k profit = Retained earnings

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