Final answer:
The ending balance of retained earnings is calculated by starting with the beginning balance, adding net income, and subtracting dividends paid out.
Step-by-step explanation:
The balance in retained earnings at the end of the year is determined by multiple financial factors. Retained earnings represent the cumulative amount of earnings that have been kept in the company rather than distributed to shareholders as dividends.
To calculate the ending balance of retained earnings for a particular year, you start with the beginning balance of retained earnings, add the net income (or loss) for the year from the income statement, and then subtract any dividends paid out to shareholders.
To illustrate: Start with the beginning balance of retained earnings. Add the net income for the year. Subtract any dividends paid to shareholders. Therefore, the final balance of retained earnings reflects the company's ability to generate profit and its decisions on either reinvesting the earnings or distributing them among shareholders.