Statement of Retained Earnings for Your Business: How to Get it Right

A statement of retained earnings is an account of the net profits of a company after the dividends have been paid to the shareholders. The statement is used to show the changes in the net retained amount over a period.

Businesses generally post these numbers at regular intervals, which could be monthly or yearly. However, smaller businesses draft such a document more often since it contains vital information about company accounts that can attract new investors. The profits earned can be used for personal reasons or can also be reinvested into the company for growth.

In this article, we will show you a quick process to calculate retained earnings and the real reasons why such a statement is important for businesses.

What is Accounts Payable Automation?

Any tool, process, or software that removes the manual aspect of accounts payable and automates the process falls under the category of accounts payable automation.

Instead of having to physically drop orders and invoices, you can now take care of the entire process digitally. Data entry can be completely removed from the question since some of these tools have the ability to scan the documents and extract information all by themselves.

This is achieved through Optical Character Recognition and is the first step in the automation process. The character recognition step is followed by routing, coding, reviewing, and approving invoices.

In an ideal situation, you would be able to take care of the entire accounting process without the interference of manual labor.

The entire P2P process is taken care of when it is automated, and you no longer have to deal with unorganized invoices and remembering your payment dates.

If you’d like to learn more about the automation process for invoices and receipts, click here.

What is Available Balance?

Available balance is the real-time balance of your bank account. It presents the balance available in your account at the present moment.

Banks work out available balance generally in two ways:

1. Your ledger balance +/- any debit or credit till the moment you check your balance
2. Your ledger balance minus any deposits or checks that aren’t processed yet

Your available balance indicates the total funds you can withdraw at any moment.

Why does Ledger Balance Differ from Available Balance?

You can come across two different balances while checking your account balance. Additionally, the figures of your ledger balance may be different from your available balance. Why?

As noted earlier, the ledger balance is the opening balance of your account of the day. It doesn’t take into account any transactions that happen during the day.

As a result, your available balance may differ from your ledger balance, which shows the figures at the day’s start.

We will take an example to illustrate the point. Let’s say you make a payment of $500 from your bank account at 12 pm. Then you log into your net banking to check your account balance.

However, you see your ledger balance shows $5,000, while your available balance is $4,500.

What is the reason for the discrepancy?

As you know, the ledger balance denotes your account’s balance at the start of the day. As a result, it will not reflect the $500 payment you made at 12 pm. It shows a balance of $5,000, which you had at the day’s start.

On the other hand, your available balance shows the real-time balance of your account. Therefore, it will take the payment of $500 into account and then show your balance.

Similarly, your ledger balance will also not include any checks deposited into your account during the day. You will only see the change once your bank receives the money from the payer and processes it to your account.

The same is also true for any check you write. The change will not reflect on your ledger balance. In fact, it will reflect on your balance only when your bank processes the check.

What about Bank Statements?

Bank statements present your transactions and balance up to a certain date. You may receive statements from your bank quarterly or on-demand.

Keep in mind that your bank statement may also not reflect the latest balance. It will exclude any debits and credits after the date written on the statement.

Therefore, your bank statement also presents the ledger balance on the statement date.

Ledger Balance vs. Available Balance: What To Focus On

Everyone should try to work with the most recent balance for accurate outcomes. You can track your available balance or keep a record of your transactions. Businesses should take a professional approach and use technology to stay updated.

They can use virtual cards that provide real-time details of each transaction. Additionally, entrepreneurs can use expense management software to track business spending.

Final Thoughts

Ledger balance is the balance of your bank account at the beginning of the day. The available balance presents the actual balance in real-time. It reflects the debits and credits from your account and presents the total funds available for withdrawal. However, both balances exclude outstanding checks pending at the moment.

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