Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
CPA | Manager
Financial statement audit season can feel overwhelming for K-12 school districts, but it doesn’t have to be. With a little preparation and clear communication, school districts can prepare themselves to have a successful and smooth audit. Below are some practical steps you can take in the months leading up to your audit to help ensure a positive experience.
Good organization is the foundation of a smooth audit. Make sure that important documentation is easy to access and clearly labeled, including:
When auditors can quickly locate what is needed, the process moves more quickly and requires fewer follow-up questions.
Before auditors arrive, your accounting records should be current. You will need to do the following:
Ideally, your books should be reconciled through the current date. Up-to-date records reduce surprises.
Don’t wait for the auditor to tell you that something looks unusual.
Run:
Then ask:
If something stands out, investigate it ahead of time. Unusual results often point to adjusting journal entries or posting errors that can be corrected before the audit.
School districts have unique compliance requirements that often go beyond the basic financial statement audit.
Be aware of:
If your district received significant federal funding during the year, you may be subject to additional compliance testing. Confirm your requirements early so you’re not caught off guard.
Strong communication can prevent most audit frustrations.
Schedule a pre-planning meeting to clarify expectations in the following areas:
Logistics
If possible, schedule audit work so that your team is not stretched too thin with everything else going on.
Staffing
Clear roles reduce confusion and duplicate requests.
Engagement Letter
Audit work should not begin until you have signed an engagement letter and you understand the letter.
PBC (Prepared by Client List)
Review the list carefully and begin gathering items as early as possible.
Discussion of Significant Matters
If any significant, unusual transactions have occurred during the year, or your organization is unsure about your books/records and the treatment of certain areas, ask your auditors for advice on these at this time. Early conversations help to prevent complications later.
Deliverables and Deadlines
An exit conference helps confirm the next steps and ensures everyone is aligned before the audit is completed.
An audit shouldn’t feel like a surprise inspection, instead it should be a well-managed project. When a school district stays organized, keeps financial records current, understands the compliance requirements and communicates clearly with auditors, audit season becomes more manageable. If you have any questions during your district’s audit, the trusted advisors at CK can help. You can call us at 630.953.4900 or contact us through our website.
In part 3 of our video series about college foundations, Dan Swanson, an assurance manager at CK, shares his perspective on working with college foundations. In this video, he explains key year-end considerations, like tax reporting and nonprofit audits and how proactive planning can take the stress out of the process. He also highlights how CK partners with foundation staff and boards to prepare for audits, maintain clean records and ultimately free up time to focus on fundraising and advancing the foundation’s mission.
Transcript:
Welcome, everybody. I’m very excited to be here today. My name is Dan Swanson. I am an assurance manager here at Cray Kaiser. I’ve been with the firm for about 12, 13 years now, and I wanted to talk about a subject matter that I’m very passionate about, and that is college foundations, and some of the important factors that we need to be considering, some of the hot topic issues.
What are they doing with year-end tax reporting? Even though they’re a nonprofit, there’s still some year-end tax reporting that needs to be done. So how do we alleviate that requirement? Nonprofits need year-end audits. So how do we help the foundation get through the year-end audit procedures? We here as auditors kind of have a leg up in that because we know what they’re going to ask for. We know what type of work papers they need. We know the routine so we can be your advisor to get you through that process.
So another value add that I think teaming up with Cray Kaiser has is the year-end audit. So as foundations, as a nonprofit organization. The foundations that we do work with, they’re required to have an annual audit performed. And typically it’s in conjunction with the college’s audit. They’re both separate audits, but they need to be issued kind of simultaneously. So an issue that comes up a lot is, oh no, it’s year-end audit time, what do we do? How do we get prepared? What are the auditors going to ask for? What do we need to do?
So what’s super cool about, you know, teaming up with Cray Kaiser is we’re also auditors. So as auditors, we know the process. We know what questions are going to be asked. We know the expectations that the auditors are going to have on the foundation. So having all that knowledge and all that experience, we can advise and we can consult with the foundation, counting staff, board members, et cetera, okay, here’s what we think needs to happen, and we can get them prepared ahead of time in advance. So come year-end audit time, all that worry, all that stress hopefully goes away because we’re ready. We have clean records. Everything reconciles. We’re super transparent. Any question the auditors have, we’re going to be able to explain, okay, here’s what we did, and here’s why we did it, here’s our work paper to support that balance or to support that transaction. Having a good clean records done monthly really sets you apart come audit time.
You know what we typically do with the foundations, I work with is the auditors will have a request list. And so what I like to do is schedule a meeting with the foundations and we’re going to go through this request list one by one and I’m going to help educate them. Okay they’re asking for this and here’s why. You know we’ll take care of this request as kind of your outside accountants or you guys take care of this because this deals with donor information and you know you have that at the ready. So we kind of divide up responsibilities on the audit. Here’s what we’ll take care of. Here’s why they’re asking for it. And we’ll meet again in a couple weeks and see where we’re at, so when the auditors are here are present they have everything they need to do to get through it timely. And we try to get out ahead of any requests that way the auditors have what they need and it’s simply they just need to get through it.
So again that’s the fun part again because I know what they’re going to ask for. I know what they need. I know how they think. And I can help educate the foundation staff and make sure that they’re as prepared as can be, come year-end audit time so these things don’t drag on and on and on and then becomes this high stress situation. If I can relieve that stress, if I can relieve that angst, then I feel like I’m doing my job.
And so far, knock on wood, the foundations every year, in my opinion, I think the audits have gone very smoothly and so that’s where my cool that’s kind of awesome. You know, we’re doing it we’re teaming up with them they’re getting through this, this year on audit procedure. It’s not this overwhelmingly stressful task. So again a lot of them, they’re fundraisers, so accounting isn’t their fortitude. So if we can come in and help educate on the accounting piece then I can free them up to go out and fundraise and spread the mission on the foundation. So that’s, I’ve got the accounting. I’ll help you out.
But again, selfishly, I’ll do the accounting so you can go out and do what you do best. So that’s where I think coming to Cray Kaiser adds value. If you have any questions that you would want to ask me, please feel free to reach out. You can go to the Cray Kaiser website and you can find me. Again, I’m Dan Swanson. I’m an assurance manager here.
In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month we’re shining our spotlight on Brigette Oberlander. Listen to her audio blog and learn more about why she chose to be a part of the CK team.
Transcript:
Brigette Oberlander. I am the Client Accounting and Advisory Supervisor. As the Accounting and Advisory Supervisor, my day-to-day responsibilities involve a diverse range of tasks, ranging from preparing monthly financial statements, navigating complex accounting regulations, and training and mentoring staff.
I joined the team in October of 2025. I was initially drawn to CK for their reputation for culture and personal development. I’m excited to gain more exposure to a diverse client base, giving me more opportunities to solve problems and grow my accounting knowledge, while also providing a chance to make an impact both internally and with clients. as the firm evolves. Since I’m brand new, I really just enjoy the people-first relationship-driven environment that Cray Kaiser provides.
The people, they provide a balanced, respectful work environment, and I really appreciate CK’s commitment to balance and well-being, and they really invest in their staff through multiple things like mentoring, training, and leadership opportunities.
I have a strong foundation in accounting and advisory work, supported by a master’s degree from Keller Graduate School of Management. My career has been built across several industries, primarily manufacturing for the most recent seven years, with additional experience in construction and real estate.
I would have to say, stay curious and always be willing to ask questions. I think the best thing you can do is build a habit of learning and focus on developing really good work habits and being open to continuous growth.
Family is a big part of my life. I have two kids. My son is 18, my daughter is 21, and they are both in college right now, which has been an exciting chapter for all of us. And at home, I have two dogs who keep things very lively and make sure there’s never a dull moment in my house.
Uh, not really a special talent, but I do know a lot of very random movie quotes. It’s never anything useful, but it does come in handy more often than you would expect. So, I recently suffered a pretty major knee injury, which has kept me away from sports for the last six, seven months.
So, I’m currently reading a book called On Top of Your Game, Mental Skills to Maximize Your Athletic Performance. I’m hoping it tries to help me both physically and mentally recover from this injury.
CPA | CK Principal
The One Big Beautiful Bill Act was signed into law on July 4th. The law significantly expands the Qualified Small Business Stock (QSBS) exclusion under Internal Revenue Code 1202 for stock acquired after July 4, 2025.
Below is a concise summary of the changes:
Stock acquired before July 4, 2025
Stock acquired on/after July 4, 2025
Tiered gain exclusion based on holding period:
Stock acquired before July 4, 2025
Stock acquired on/after July 4, 2025
Stock acquired before July 4, 2025
Stock acquired on/after July 4, 2025
Federal QSBS benefits don’t always apply at the state level. Cray Kaiser can provide guidance on state conformity regarding QSBS.
QSBS planning is time-sensitive and documentation-heavy. There are qualifications that must be met to qualify for this gain exclusion. Have QSBS questions? Contact Cray Kaiser today. We will help you navigate through these hurdles.
CPA | Tax Manager
The Qualified Opportunity Zone (QOZ) program was originally introduced as part of the Tax Cuts and Jobs Act (TCJA) of 2017 to encourage long-term investments in economically distressed communities. The One Big Beautiful Bill Act (OBBBA), is bringing major updates to this tax incentive program, giving investors and developers new benefits and rules.
Here’s a breakdown of what’s new, why it matters and how you can prepare for what’s next.
A Qualified Opportunity Zone is a designated economically distressed area in the U.S. The goal is to encourage private investments in these zones by offering tax breaks to investors to stimulate growth and development in these areas.
Under the original rules, investors could benefit from:
However, these benefits were set to expire on December 31, 2026, which limited long term planning.
The One Big Beautiful Bill Act gives the Opportunity Zone program new life by removing the expiration date and introducing a set of enhancements designed to focus investment in the areas that need it most.
Here are the key updates:
The Program is Permanently Extended
The QOZ program is no longer set to expire in 2026. Instead, it’s been extended indefinitely, providing long-term stability for investors and developers.
New Zones Every 10 Years
Stricter Eligibility Requirements for Zone Designation
To better target areas in need:
Updated Tax Incentive
There are a few important adjustments to how tax breaks work:
New Opportunities for Rural Investors
For the first time, there’s a special focus on rural America through the creation of Qualified Rural Opportunity Funds. These funds come with extra perks, including:
Unfortunately, these exciting changes do not take effect until January 1, 2027. This means all investments prior to then will fall under the old QOZ rules. Under the old rules gains are only deferred until 2026, at which point you must report and pay tax on them. A one-year deferral isn’t much of an incentive for investing prior to 2027. Because of this lag in policy, experts anticipate a slowdown in QOZ funds as investors wait for the new rules and longer deferral periods to kick in.
The Opportunity Zone program has entered a new era. With enhanced benefits, a focus on rural areas, and long-term stability, investors may find fresh reasons to explore these communities and investments. But until the new rules take effect, investors should consider holding off on QOZ opportunities until they can take full advantage of the new benefits starting in 2027.
If you’re wondering how these changes could affect your investment strategy, our tax experts can help you evaluate your options and prepare for the new Opportunity Zone landscape. Contact us to learn how to make the most of these upcoming opportunities.
MSA, MST | In-Charge Staff Accountant
On December 2, 2025, the Internal Revenue Service (IRS) released a draft of the new Form 4547, titled Trump Account Election(s). This form allows authorized individuals (typically parents or guardians) to elect to open a “Trump Account” for eligible minors. These accounts are part of a new federal initiative designed to help children build financial assets early in life. One of the most notable features of Form 4547 is the option to receive a $1,000 “Pilot Program Contribution” from the U.S. Treasury for children born between 2025 and 2028.
According to the IRS instructions, the the most efficient way to file Form 4547 is by submitting it with the authorized individual’s electronically filed current-year federal income tax return. For the initial rollout, this would likely coincide with the filing of the 2025 tax return.
If the form is not filed with the tax return, it may still be filed separately using paper filing.
The IRS has announced plans to launch an online portal at trumpaccounts.gov in mid-2026. This portal may eventually allow authorized individuals to make Trump Account elections online. However, it is important to note that contributions to Trump Accounts will not be allowed before July 4, 2026.
In early December, the Michael & Susan Dell Foundation announced a $6.25 billion philanthropic commitment to fund 25 million Trump Accounts. Through this initiative, the foundation plans to contribute $250 per account for children who:
This program is intended to support children who do not qualify for the $1,000 federal Pilot Program Contribution. Parents can assess potential eligibility by entering their zip code into Census Reporter which provides median income data from the U.S. Census Bureau. Additional details about the Dell Foundation contribution aren’t available yet but we will provide an update as soon as more substantive information becomes available.
To learn more about how Trump accounts, Form 4547 or related contribution programs may impact your family, please contact one of the trusted advisors at Cray Kaiser. We can help you navigate new developments and plan accordingly.
CPA | CK Principal
As it does every year, the Internal Revenue Service recently announced the inflation-adjusted 2026 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Additionally, tax professionals and their clients may use the optional standard mileage rate to calculate the deductible costs of operating vehicles for moving purposes for certain active-duty members of the Armed Forces, and now, under the One, Big, Beautiful Bill, certain members of the intelligence community.
Beginning on Jan. 1, 2026, the standard mileage rates for the use of a car (van, pickup or panel truck) are:
The business standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set (it can only be changed by Congressional action) and has been 14 cents per mile for over 15 years.
Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. Notice 2026-10 contains additional information.
If you have questions about the standard mileage rate or calculating the actual cost of using your vehicle for business, please contact Cray Kaiser.
CPA | Tax Manager
Beginning January 1, 2026, the rate for the Chicago Personal Property Lease Transaction rate increased from 11% to 15%. This change applies to invoices for all leases, including non-possessory leases for computers to manipulate data supplied by customers. The tax impacts businesses and individuals within the City of Chicago who are leasing personal property used in Chicago.
Understanding how this tax works and whether or not it applies to you is important to avoid compliance issues and unexpected costs.
This tax rate increase may impact you if:
Unless your customer qualifies as an exempt lessee, you must ensure the tax is calculated, charged and remitted at the new rate beginning January 1, 2026.
As part of its 2026 budget the City of Chicago approved additional tax changes, including:
These changes may affect both businesses and consumers.
The City of Chicago has published more details about all 2026 tax rate changes, including the Personal Property Lease Transaction Tax on its website.
Chicago tax rules, especially those involving leased property and software, can be complex. If you are concerned about these tax increases, unsure how they impact your business or how to properly calculate them, the tax team at Cray Kaiser is here to help. Contact us to ensure your business remains compliant and is prepared for the 2026 Chicago tax changes.
In this video, Matt Richardson and Damian Contreras, Tax Seniors at CK, walk you though how to use our secure client portal. From setting up your account and uploading documents to paying invoices, completing your tax organizer and receiving notifications, this overview will help to make managing your tax information simple and stress-free.
Topics Covered:
How to Access the Portal & Setting Up Your Account – 0:08
How to Upload Files – 1:40
How to Make a Payment – 3:45
How to Edit and Upload Your Tax Organizer – 5:42
Making Changes to Information on Your Tax Organizer – 11:37
Electronic Signatures – 12:05
Forgot Your Password – 13:07
Transcript:
I’m Matt Richardson. I’m a tax senior at Cray Kaiser. I’m Damian Contreras. I’m also a tax senior here at Cray Kaiser. And today we’re going to walk you through our portal that we use and started back in January of 2024. So Matt’s going to take you through the steps of how to set up the portal and how you initially get the invite to the portal.
Yeah, so I’ve just clicked on the link in the email, the notification email you get for setting up your new portal account. It takes you here, and then all you have to do is create a password. And once you’ve done that, you’re in. Once you load in, it brings you to our home landing page, which prompts you at the very top with if there’s any outstanding balances due, as well as right below that is. your to-do list and any recent files that are in your portal for you. If you have multiple accounts, for example, if you have an individual, if you have a trust, if you have a business, if you have children’s returns, you’re managing, to switch between the different accounts, you’ll go down here. There’s a name and there’s a personal. You can switch between a personal and then it’ll show any others that are connected. We just have a fake business client here connected. So anything that’s connected to you with Cray Kaiser, you’ll have a selection there to toggle between. So when you’re uploading documents, you can upload the documents to the specific portal for whatever the documents are for. That way we can kind of make sure everything’s staying nice and sorted.
And now let’s say you are getting your tax documents and you want to give them to us we don’t necessarily even have to request them from you all you have to do is simply go into your portal and upload them and we get notifications that you’re adding new files into your folder. So Matt will show you how to add a new file into your portal. So all you’ve got to do is go over here to files, add a file and then you can select. It’ll bring you over to your computer’s files that anything that you have downloaded to your computer and you can go in and access them and you can click on as many or as little files as you’d like to upload. So you can upload any file type that you would like. The only file type that we request you don’t upload is any JPEGs and pictures. We prefer Word documents, PDFs, Excels, anything of that nature is a great file to upload and our system can handle it. You can even upload zip files if that’s easier for you. If you’re adding in password-protected documents, when you are prompted to rename the file, maybe include the password with it, or else we’re going to have to reach out to you and ask, what’s the password to access this? It is a secure portal, so you are able to do that. Absolutely. And also, if you have a window open, you can just drag and drop as well. Very easy to add something.
Something we have people ask about is how to sort files in the portal. What happens is once you upload it, we’ll get a notification and it will prompt us to sort the files into whatever the relevant tax year or folder is within your portal. So the client doesn’t need to worry about dragging into a particular folder. You can just drop it in here in the file tray and we’ll take it from there. The only thing we ask is you put it in the respective client’s folder. So that’s the only indexing we need you to do is to index it in the proper client, not necessarily the right year and folder type.
So then we can also go down to the billing portion of it. So if you want to go there, let’s say you have a bill due. Any of your bills will be prompted right in the Canopy portal. And you can still, if you’d prefer to make a paper check, you can do that and mail it. But it will give you your invoice in here or you can very easily go and make a payment or view your payment history or what outstanding invoices you have. And to make a payment all you have to do is click the make a payment button. Even if you have no balance due just click on additional payment and you can type in what whatever amount you’re able to pay at that time and you just hit continue and you can pay with either a credit or debit card. There is a fee attached to that. Or you can do a direct bank account debit by putting in your account and routing number.
Whenever we upload documents for you, invoices for you, copies of your tax returns, payment vouchers, we will send you an email notification that’ll prompt you exactly with what we put in there, what’s it called, is it an invoice, is it a copy of your 2024 tax return. So all of that will be sent to you via email and then you can log into your portal, view it, download it, and see all of that within your portal. And it’ll come to you by entity as well. So if you have your personal and then your kids or your business, it will say, you know, uploaded in John Doe’s file or, you know, John Doe Inc’s file for you. So it’ll come to you for each portal you have access to.
Currently, you are not able to see the status of your tax return in the portal. That’s something you’d have to reach out to us for. And whoever’s on your team here at Cray Kaiser would respond to you promptly on where your tax return sits in the queue.
Also something that we’re going to be implementing for the 2025 tax year as it’s creeping up for your individual tax returns is you’re going to see your organizer as a to-do in your personal portal. So when you log in, Matt will show you right there. It says organizer 2025. All you have to do is open that up. We’ll have a PDF file attached. Open it up and there will be our letter and our questionnaire to fill out. And then there will also be your prior information for you to review and see what you need to send us this year. And you can fill this out in the PDF, attach it, re-upload it to us, and we can receive it that way. If you prefer to print it out and re-scan, that’s possible as well. Yeah, and when we send it over to you, you’re going to get an email notification telling you that there’s a new to-do in there for you. It’s going to be the 2025 organizer. And we just request that you review it and write any pertinent information on there. Did you switch jobs, open new accounts, have a kid, expand your family? Are the kids in college? And we have questions on the organizer’s first and second page that go over all major life changes that are very common, that can impact your tax return.
This step we’re going to show you how to download and fill out your organizer through the pdf file. And if you’re not as comfortable with the technology you can still print it out and re-scan it and upload to us but I think for a lot of people it’ll be easier just to do it in the PDF and re-upload it. So the first thing to make sure you have, you do need to have a PDF editing software. So Adobe is a common one that a lot of people have, but there are a lot of other softwares as well. You should be able to do it in any program that allows you to edit a PDF. So make sure you have that. Some of them are browser based. Some of them are desktop based. Again, pretty much anything will let you edit a PDF. So when you’re ready to fill out your organizer, you can just go to the portal. You’ll either have it in your files. There should also be a to-do list item for you as well once we upload them. And then the important thing here is we’ve had some people fill it out in the viewer here, through Canopy. It will let you sometimes edit or type things on here, but unfortunately it does not save back to the portal when you edit just through this viewer. So you do need to actually download it to your desktop computer and then edit it. So we’ll download. And so once you’re in and have it open, you can go through and add all the information you need to. Most of these editors will have comment tools so you can add a check mark, click for yes, no on all these questions. So that’s typically pretty simple. Doesn’t matter, check mark, X, whatever you like to use. If you need to add data or numbers, scroll down to one of these sections for more information. So if you need to add information, there are usually multiple ways you can add a text box. You can add that and tell us, I bought a new rental this year. I’m not sure what you need, but I included some documents. So you can add a note like that for us with a text box. Some of them also allow you to type text directly onto the document without a text box. You know, it looks a little different, but again, as long as you’re putting the information there, we’ll be able to handle it. Same goes for the fields that have number inputs. So if you’re putting in your charity contributions, you can just go in, edit, type the text on here, and then we’ll be good. So what you need to do then, you need to save this once you’re done filling it out. Save the file. And if you want to, just to help us track things, you could always rename it something like filled out, just so we can keep the original one straight from your filled in one. You don’t have to do that, but that would just be a little helpful if you can do it. And then go to files, add a file, and attach your organizer. And then we’ll have it in our portal. So it’ll be in our portal. If we open it up, we’ll see the changes you added to it, the check marks, the numbers, the other information you’ve added. That said, once you’re done, all you do is re-upload it to the portal, add any comments that you’d like, and mark it as complete. And then it’ll let us know that it’s ready for us to review and complete your tax return. If anything changes after you’ve uploaded the initial organizer at that point, it’s probably better just to email or give us a call. Whoever your contact here is and let us know what information has changed that’s definitely something that happens pretty frequently and I think once we’ve got the organizer and looked at it it’ll be much you know easier for us to track down the change and see what we need to do if you just call us and say oh hey I forgot to tell you about this new account I opened or whatever it is then we can kind of get right to it.
We do have a feature within the portal to send electronic signatures. Most of our electronic signatures will come through DocuSign and they’ll go directly to your email from our tax software or our personal DocuSign accounts for those those items. And sadly the IRS is slowly developing accepting electronic signatures so there are still some where we’ll publish documents in the portal that you’re going to have to print out and put a wet signature on. But if we can do things electronically, we definitely try to do those electronic signatures and make it very easy into your emails.
The portal has an automation system in it. So once we set up that to-do for you, we can choose whether it emails you daily, weekly, monthly with reminders until it’s completed. So we’ll probably turn it on to where every week or every other week it’s sending you a reminder to say, hey, this task is in there, this organizer is in there for you to complete. And then until it’s completed, you’re going to keep getting those emails.
What if you forgot your password to the portal? So to get into your portal, all you have to do is go to the Cray Kaiser website, craykaiser.com, and then in the left bar, it’s going to have a little option for portal. So you just click on portal, and it will immediately take you to the Cray Kaiser portal. Once you’re on that landing page, it’ll tell you to put in your email and your password, and there will be an option for forgot password, and it’ll walk you through the steps to reset it.
Thank you for listening to Matt and mine’s explanation and steps on how to use the portal. And if you have any questions, feel free to reach out to your team member here at Cray Kaiser, a member of our admin team, and we’ll further assist you with the portal.
Accounting & Advisory Services (CAAS) Manager
Understanding the difference between net income and retained earnings is essential for any business owner who wants to build long-term profitability. While these two accounting terms are closely related, they serve different purposes and offer valuable insights into your company’s financial health.
Retained earnings represent the leftover net income after dividends have been paid to owners or shareholders. Instead of being distributed these profits are reinvested, back into the business forming a fundamental part of equity. These funds can be leveraged for various productive uses, including financing new projects, investing in research and development, or upgrading infrastructure.
In other words, retained earnings reflect how much profit your business has chosen to retain for future growth rather than pay out. This healthy practice forms an important part of the shareholders’ equity section on your balance sheet and also strengthens a company’s financial position over time.
The formula for retained earnings is a simple formula:
Retained Earnings (RE) = Beginning RE + Net Income – Dividends.
For example:
If a business. begins the year with $300,000 in retained earnings, earns $100,000 in net income and pays out $20,000 in dividends, the ending retained earnings would be $380,000.
Net income measures how much money your company earns after all taxes, operating costs and expenses have been deducted. It’s a key indicator of the company’s profitability for a specific period. It’s important to note that while net income contributes directly to retained earnings, the two serve different purposes:.
It’s also important to note that net income is taxable, while retained earnings are not, since taxes have already been paid on those profits.
Dividends represent the portion of profits distributed to shareholders, typically paid in cash or as stock dividends. To maintain healthy dividends, a company must ensure they have sufficient retained earnings to support these payouts while also funding growth.
You can find retained earnings in the equity section of your balance sheet, typically on the right side, along with liabilities and shareholder equity. Some companies also prepare a separate statement to track retained earnings, showcasing the inflow and outflow of these critical funds.
Even simple calculations can go wrong if not handled carefully. When tracking retained earnings:
Accurate calculations ensure your financial statements reflect the true state of your company’s growth and performance.
Both net income and retained earnings are more than just numbers, they’re essential indicators of financial health and business growth strategy. By understanding these concepts:
A clear understanding of net income versus retained earnings helps business owners build smarter growth strategies and maintain financial resilience.
Ready to delve deeper? Our Client Accounting and Advisory Services can review your Retained Earnings and help you plan for sustainable business growth. Contact us today to schedule a consultation.
