Markets · 6 pages · 12 min

How earnings are an accounting

Earnings are a period's accrual residual, not a cash count and not a price for the shares.

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From the opening

Earnings are the profit a period's accounting produces, revenues recognized minus the expenses matched to them under the rules in force. They are an accounting residual, not a count of cash in the drawer and not a market price, and they update retained earnings inside the identity that assets equal liabilities plus equity. The opening covers accruals time revenue and expense, cash can move the other way, and the residual updates retained earnings.

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Inside

Accruals time revenue and expense
Cash can move the other way
The residual updates retained earnings
Assets equal liabilities plus equity
Where the idea stops applying
A distinction worth keeping

Sources

Accrual accounting and earnings
Retained earnings in the balance-sheet identity

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How earnings are an accounting

From the opening

Inside

Sources

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