How is ending retained earnings calculated?

Ending retained earnings are calculated by taking the beginning balance of retained earnings, adding the net income for the period, and then subtracting any dividends that have been paid out. This reflects the net effect of the company's operations and the distribution of profits back to shareholders.

The rationale behind this calculation is that retained earnings represent the cumulative net income of a company that has not been distributed to shareholders as dividends. By adding net income, you're accounting for the profits made during the period, and by subtracting dividends, you're recognizing the portion of those profits that has been returned to shareholders. This formula provides a clear picture of how much of the company's profits are being reinvested back into the business versus being distributed to shareholders.