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How To Calculate Retained Earnings? A Simple Guide

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Retained Earnings

Retained earnings is an important term in the world of accounting. It cannot be denied, when running a business, of course you will always be involved with increasing capital aimed at increasing profits, right?

The use of this type of profit is important for company financial calculations and economic balance sheets. 

What is Retained Earnings?

The definition of retained earnings is a historical profit earned and deducted from previous dividends.

If this profit is not calculated alone, it will be divided into various sectors entitled to receive funds, such as shareholders and investors.

Apart from that, the retained earnings report is usually applied in accordance with the agreement between the company owner and the owner of shares or capital.

The retained earnings function will always be adjusted to the company’s needs to manage its operations. Of course, even though these profits are limited, the owner or investor can clearly know the details of the funds from the profits obtained.

This is because the retained earnings report is still calculated by the company accountant as a record and financial report.

Even if imprisoned, capital owners and investors with dividends have an amount of money and profits equal to their nominal payout.

Retained Earnings Function

Next, you also need to understand the function of retained earnings. The following is a complete description that will help you in developing your business further:

1. Source of Reserve Funds

The first function of retained earnings is as a source of reserves for an entrepreneur or company. This means that the benefits must be distributed or managed directly in the event of a final reservation in the form of affiliate reserve funds.

It is important to remember that shareholders or employees know the direction to maintain existing profits, one of which is to become a source of funding.

2. Business and Enterprise Development Capital

The next function of implementing or maintaining retained earnings is as capital for business and business development.

This business development itself is not only related to building construction, but can also be an addition to the company’s natural and human resources.

3. Assisting in Debt Payment

The next function of retained earnings is to help the company pay off or pay off debt. If a company has a fairly high level of debt, it is very profitable to use retained earnings as an investment. This is because the profits obtained by the company can be used and allocated as debt repayment funds.

In addition, by using its own retained earnings, the company’s main funding cycle will be safe, because debt payments themselves do not affect other funding sources.

4. Advanced Investment Capital

Apart from the several functions explained above, the allocation of retained earnings can also be used to support other investment capital. For example, one company can buy shares in another agency and receive funds from the purchase. These profit funds can also be used to purchase land, buildings or equipment to support the business.

What are the Benefits of Retained Earnings?

The benefits of the report also calculate retained earnings in the accounting process itself, namely:

  • To finance company operations to achieve maximum profits. The goal is for the company to continue operating and develop more rapidly so that it can generate more profits for investors or shareholders.
  • To pay off existing debts. Companies can plan debt payments by retaining profits, especially those that will soon be due.
  • As reserve funds for the company’s investment needs. With these extra funds, the company can fund operational activities independently without needing to borrow money from other parties such as banks.
  • For the company’s future development. Including investments in companies or other businesses.

How to Calculate Retained Earnings

After knowing what retained earnings are, their purpose and function. Now you also need to know how to calculate retained earnings.

The retained earnings formula is as follows:

Retained earnings = Net profit after tax – Dividends

Meanwhile, the calculation steps include the following.

  1. Calculate Gross Profit

Gross Profit = Sales figure – Cost of goods

  1. Calculate Operating Profit

Operating Profit = Gross profit – Operating Costs

  1. Calculate Net Profit before tax

Net Profit before tax = Operating Profit – (Interest + Amortization + Depreciation)

  1. Calculate Net Profit after tax

Net profit after tax = Net profit before tax – Tax Rate

Basically, retained earnings are profits that have not been allocated by the company to be distributed to shareholders.

However, this is based on a mutual agreement between shareholders and the company. One of the causes of retained earnings is financial reporting errors. This can happen because the financial reporting process is still manual and no data has been entered.

Example of Retained Earnings Report

For example, ABC Company is still continuing its business in November and makes a profit of $ 10,000,000. Next, they decide to pay dividends in cash and issue a stock dividend of 5%.

Let’s say ABC Company has a total of 10,000 shares in circulation, and determine the market price for each share is $10,000.

This means, if ABC Company  issues 500 stock dividends, each of which will reduce its retained earnings by $ 10,000.

Retained Earnings = Net profit after tax – Dividends

Retained Earnings = $ 1,000,000 +  $ 10,000,000 – (500 x $ 10,000)

Retained Earnings = $ 11,000,000 – $ 5,000,000

Retained Earnings = $. 6,000,000

That is a complete explanation regarding the meaning and how to calculate retained earnings. Based on the explanation above, don’t forget to ensure the validation of these financial calculations.

List of Retained Earnings Accounts

Below is a list of adjusted retained earnings accounts:

  • Research and development
  • New product development.
  • Creation of new construction
  • Acquisition of new headquarters
  • Marketing campaign
  • Settlement of lawsuits
  • Debt Reduction
  • Reserves to be used in the event of future borrowing restrictions
  • Reserves to be used in the event of an unexpected insurance loss
  • Acquisition
  • Share buyback.
  • Bankruptcy
  • Reinvest in operations.
  • Reinvestment in construction.

Conclusion:

That’s our explanation of how to calculate retained earnings. But if you don’t have time to calculate it or it still feels difficult. You can use business applications from Agiled.

This application will present various types of profits and other financial reports automatically, quickly and accurately. What’s more, it is equipped with various extraordinary features and business modules that will make your operations run more efficiently.

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Pros and Cons of BYOD: Opportunities and Risks For Companies

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Pros and Cons of BYOD

With increased remote work from home offices during the previous pandemic, the use of private devices has also become more and more established. Even if this solution initially seems helpful for companies and employees, the concept poses some risks and dangers for IT security.

We will show you how the use of your own technical devices can be combined with maintaining data security and what companies need to pay attention to. Learn about the pros and cons of BYOD (Bring Your Own Device) policies to make informed decisions for your organization.

What should you consider when it comes to data security

Access to sensitive company data from private devices often poses threats to a company’s IT security situation. In principle, any digital device that has a network connection can pose a risk to IT security – whether it is currently used hardware and software or old devices that are still in the network. Private gadgets used in BYOD only have limited control: after all, they continue to be used in non-company networks and for personal purposes. This raises the risk of malware such as rootkits, and company data stored may be more vulnerable to cybercriminal access. That’s why companies should develop a comprehensive security concept before they allow the use of third-party devices. All security guidelines for handling can be recorded in this so that the “Bring your own device” concept can be successfully introduced and all risks can be minimized as early as possible.

Explore The Pros and Cons of BYOD

Pros of BYOD

Working according to the bring your own device principle has numerous advantages for users and institutions. Employees who can bring their personal mobile device into the company do not need to get used to a different operating system. You put together the features of your laptop according to your personal wishes. This increases employee satisfaction.

Using your own mobile device for work allows for greater flexibility. When smartphones or tablets are used, employees gain greater mobility .

Bring Your Own Device means cost savings for companies. There is no need to purchase new computers if employees use their own.

Working with your own, familiar device in schools, universities or libraries means greater user-friendliness . With good WiFi coverage, smartphones, tablets or laptops can be used flexibly and mobilely in different locations, unlike stand-alone PCs. Likewise, there is no need to invest in a large part of the IT equipment for educational institutions because they do not have to provide computers.

Cons of BYOD

The bring your own device principle also has disadvantages for companies and institutions. A serious factor is the lack of data security when accessing an internal network or sensitive company data. Using your own devices means a high degree of heterogeneity or diversity in a company’s hardware and software equipment. The different laptops, smartphones or tablets require more effort for IT management, which puts the cost savings when purchasing company-owned devices into perspective.

Data security with the bring your own device principle

Bring Your Own Device complicates administration and control, meaning employees’ private devices represent a security gap for the company’s internal network.

If a private laptop is affected by malware and is connected to the network of a facility, a Trojan can read the entries on the keyboard and thus logins and passwords. This is how hackers gain access to sensitive data. If the network of a company or institution is open to external access – for example via cloud services – then outsiders can gain access. This also applies to password-protected logins.

Bring Your Own Device and the General Data Protection Regulation (GDPR)

There is also a legal aspect. With Bring Your Own Device, personal or company-internal data is accessed and stored on a private device. This does not comply with the guidelines of the General Data Protection Regulation (GDPR). It must be legally clarified how data and business secrets are handled. In addition to reduced data security, the flexible use of private devices also means stress for employees. If you use your laptop in your free time and can be reached at any time, it is difficult to separate your private and work life.

Advantages

  • Efficient work on your own device
  • High employee satisfaction
  • High user-friendliness
  • Flexibility & mobility
  • Cost savings for companies

Disadvantages

  • Lack of data security
  • Security gap for the company network
  • Legal objection: GDPR
  • Heterogeneous hardware and software
  • Difficult administration for IT

Guidelines and Safeguards for Bring Your Own Device

When applying the bring your own device approach, it is important to weigh up the advantages and disadvantages as well as the costs and benefits. In addition to small hurdles such as the fact that software such as Microsoft Office on private laptops is not licensed for commercial use in companies, ensuring data security requires a certain amount of effort. It is worth setting up internal company guidelines for these purposes. The basic procedures include regularly updating the operating system, using a virus scanner and uniform software to protect against malware.

What are the future trends and directions of BYOD?

Future trends and trends in BYOD (Bring Your Own Device) are constantly evolving depending on technological advances, changes in ways of doing business and the needs of employees. Here are the possible future trends and directions of BYOD:

1. Greater Mobility and Flexibility: 

With mobile device technology constantly evolving, BYOD policies can become even more mobile and flexible. The spread of 5G and next generation connection technologies will provide employees with access to higher speed data transmission and stronger connections. This can enable the workforce to work more efficiently without being tied to the local office.

2. Increasing Security Measures: 

With the increasing use of BYOD, security concerns are also increasing. In the future, businesses will adopt stronger security measures and data protection strategies for BYOD policies. By using security technologies such as biometric authentication, multi-factor authentication and remote data encryption, business data will be protected more securely.

3. Compliance and Regulations: 

BYOD use triggers various compliance requirements such as data protection regulations and personal data privacy laws. In the future, businesses may have to update BYOD policies and improve data protection processes to ensure such compliance.

4. More BYOD Support and Consultancy: 

As BYOD becomes more complex, companies will need more consultancy and expertise to develop, manage and support BYOD policies. Cybersecurity consultants and technology providers will become more important to offer appropriate BYOD solutions to organizations.

5. BYOD and IoT (Internet of Things) Integration: 

With the increasing use of Internet of Things (IoT) devices, BYOD policies can expand to cover more device types. Employees can also be integrated to manage IoT devices and monitor their data through BYOD devices.

6. Virtualization and Cloud-Based Solutions: 

Virtualization technology and cloud-based applications can help in the successful implementation of BYOD policies. It can improve security and data protection measures by providing access to business clients through employees’ personal devices. Likewise, cloud-based applications can offer a more secure environment for accessing data and collaborating.

Conclusion:

There are many pros and cons that should be analyzed before adopting a BYOD strategy. A BYOD strategy can save money and increase productivity by promoting familiarity with a work device. However, such a strategy may also entail certain risks for the company. Before implementing a BYOD strategy, both employees and employers should thoroughly research the policies and risks to familiarize themselves with the key advantages and disadvantages.

FAQs

What should be contained in a BYOD policy?

BYOD policies must take into account general or industry-specific compliance regulations . Even if employees use personal devices, the company must still ensure that data is protected. They must also understand the liability linked to compromised data.

What security challenge does BYOD pose for networks?

The biggest challenge to widespread BYOD adoption is security, closely followed by compliance issues . Security is not an aspect that can be ignored; Using corporate apps on employee-owned mobile devices can lead to data leakage and connectivity issues.

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3 Types of Invoices in Business Transactions, What Are They?

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Types of Invoices

Invoices  are one of the documents or files that are quite important in the company. Generally, these documents relate to payment of bills for goods or service transactions. In this article, you will be invited to understand more about what  an invoice is, its types, components, purpose, and also its benefits for companies.

What is an Invoice?

The term invoice may sound less familiar to the ear than invoice. However, this term has usually become everyday food for an accountant or finance department in a company.

An invoice  is a file of payment bills for transactions for certain goods or services. It contains all billing details written as proof of billing/payment to customers. 

In another sense,  an invoice  is a written document containing a debt collection letter. The party who makes the document is the seller, who then gives it to the buyer as the party who has the debt. In more detail, the invoice contains the name of the product, price and date of purchase of goods/services.

Generally, this billing file is created in triplicate, to be given to the buyer, as a financial file, and a letter of proof for the seller himself. Apart from being a billing document for certain transactions,  invoices  also function to collect transactions in the form of credit.

Types  of Invoices

You need to understand that the billing file has several types, namely  regular, consular and proforma  invoices. You can see the explanation in the review below.

1.  Regular  Invoices

Invoices that are commonly used in buying and selling goods/services transactions are regular invoices. Usually, regular invoices are used for simple transactions and contain details of the goods, quantity of goods and the total amount to be paid.

2.   Consular Invoice

In particular, consular invoices are created for billing for various transactions on an international scale, such as export-import activities. This document must also be legalized and obtain permission from the country concerned.

3.   Proforma Invoice

The last type of invoice is a proforma which is issued for billing for sale and purchase transactions carried out periodically.  This invoice  is only temporary and will later be replaced with a general type of invoice when the transaction is completed.

Components in  Invoice

As previously discussed,  the invoice  contains a record of the sale and purchase transaction of goods or services consisting of the title, customer identity and details of the goods or services. The following is the explanation.

1. Invoice Title

The invoice title is the main component that must be included in the billing invoice. Even though it seems trivial, the title of the invoice will make it easier for both sellers and buyers to find proof of transactions when they are needed at any time. It is best if the title is written at the top center in capital letters. 

2. Customer Identity

The next component that must be included in the invoice is the customer’s identity, such as the name and mailing address when creating  the invoice. Information on the customer’s identity will make it easier for both parties to understand the document further, as well as assist the customer in sending a check to the seller. 

3. Details of goods/services

To make it clearer, the invoice should also specify the names of goods/services in detail by paying attention to the following things.

  • A list of goods or services that includes the name of the product, price per unit, and the amount to be paid.
  • The date the invoice  was created  includes the purchase date, issue date and payment due date. 
  • Invoice number which will later be useful in archiving  invoices. Generally, invoice numbers are generated with a special code. 

Purpose of  Invoicing

Making invoices  is  not without purpose. Even though it only contains details of bills for certain goods or services, this document is very important for a company. The question is, what is the main purpose of creating the invoice?

As previously mentioned, an invoice is a document that is proof of payment for the sale and purchase of goods or services made by the seller for his customers. The existence of written evidence is very important to avoid violations of the sale and purchase transaction agreement between the seller and the buyer.

Apart from that, the invoice is a quite crucial document for the company because it contains transactions related to the incoming and outgoing company money, so that at any time it will definitely be needed as a company archive.

Benefits of  Invoices  for Companies

Considering how important an invoice is for a company, below we will explain in more detail the benefits of  this invoice.

1. More Systemized Business Document Management

Document management within the company is very important, especially for reports or internal audits that may occur at any time. Therefore, the existence of this invoice will later help relevant departments within the company in managing internal documents. 

2. Contains precise and accurate information

Even though it seems trivial, information written completely, precisely and accurately in an invoice will be very useful for the continuity of a company’s business in the future.

3. Make it easier for related departments to access invoices

Invoices  will help the company’s business and make it easier for business people who want to access them from the storage room. This will be very useful for knowing all the details of important information that supports the achievement of long-term business goals.

Apart from invoices, there are many other important documents that are very useful for both companies and employees, such as pay slips. Pay slip recording generally contains details of the components of the work wage itself such as basic salary, allowances, bonuses, overtime pay, and various deductions such as taxes, etc.

Each employee in each position will of course receive a different number of salary components and this requires an accurate and thorough recapitulation and calculation process.

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Exploring the World of Mobile Houses: Advantages and Disadvantages

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Mobile Houses

Mobile houses are also called integrated houses or detachable houses. Mobile house is a new type of building. It is a living room that can be easily assembled and moved. For example, it can be towed behind a car. It has the function of looking like a trailer and being a living room inside.

Versatile Applications of Integrated Houses in Various Sectors

At present, integrated houses in my country are mostly used for temporary offices, dormitories, transportation, water conservancy, oil, natural gas and other large-scale field exploration and field operations at construction sites; temporary housing for large-scale sports activities, exhibitions, etc.; leisure villas and holiday homes in tourist areas ; post-disaster turnover housing and military areas; various clubs and low-rise residential buildings, etc. 

Future Of Mobile Houses

According to its application fields and product characteristics, integrated houses can be divided into two categories: mobile houses and integrated residences. The emergence of integrated houses is a revolutionary leap in architectural design concepts. It is conceivable that in the future, construction sites will no longer be filled with dust and roaring machines. The process of building a house is just to place factory-made building modules in a prefabricated structure like building blocks. This will bring huge changes to the construction industry.

Advantages of mobile homes

Cheaper in Cost:

A mobile home or prefabricated home is a type of prefabricated housing that can be hauled from a manufacturing plant to a residential base. Today, most mobile homes are used as permanent homes in a fixed location. Due to year-round manufacturing and the use of mass production techniques, such homes are relatively cheap to build.

Features:

Large mobile homes may contain more than seven rooms. Most mobile homes are sold with carpet, drapes, and appliances included. These homes are usually towed from one place to another by moving companies. Many countries impose width restrictions on vehicles traveling on public roads. Therefore, some mobile homes have sliding or folding side walls to reduce the width of the home when transported; other homes are transported in parts and then assembled after arriving at the homestead.

Placement Options:

Traditionally, mobile homes are placed on leased plots in mobile home parks, where water, electricity, postal services and other services are all available. However, there are now many mobile homes placed on individual lots. These homes can be installed on a permanent foundation or anchored to the ground with cables or steel straps.

Sustainability:

The mobile integrated house has the advantages of high protection, long service life, and can be reused many times. Moreover, its price is much lower than that of ordinary houses. Its assembly period is very short, and it usually takes a skilled person one or two days. In a short period of time, an integrated house can be built, which can also be equipped with water, electricity and gas. It does not produce a large amount of construction waste during the assembly process, and as long as the components are not damaged when folded and assembled, it can be recycled multiple times. There are so many mobile homes, and it can be predicted that they will become a new type of housing to replace traditional housing in the future.

Disadvantages Of Mobile Homes

Inadequate Insulation:

Poor heat insulation. The thermal insulation effect is not good. It’s cold in winter and hot in summer.

Sound Insulation:

The sound insulation effect is poor, making it difficult to have a quiet environment.

low durability:

Prefabricated houses have low durability and are easily damaged. Prefabricated houses are temporary buildings that the homeowner needs to use as temporary office space, accommodation, and front room.

Insights from Legal Experts on Mobile Home Living

According to American legal professionals, residing in cities with robust rental laws is crucial for mobile home owners. These laws serve to prevent landowners from arbitrarily increasing rents, thereby alleviating the financial burden on residents and ensuring a more sustainable living situation. In areas where legal protections are strong and landowners are cooperative, mobile homes represent a viable housing solution, particularly for low-income families. By providing affordable and stable accommodation options, mobile homes contribute to improving the quality of life for individuals and families facing economic challenges.

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