Question

What is the difference between current earnings and profits and accumulated earnings and profits?

Answer 1

• Current Earnings and profits are those earnings that the company has earned during the current period. These are calculated by adjusting or deducting current year expenses incurred from current year revenues earned.
• Accumulated Earnings and profits are the accumulated ‘current earnings and profits’ over year. The earnings and profits that a company has earned over year gets accumulated over time. These are generally referred to as “retained Earnings”.
• Following example will demonstrate Current earnings and Accumulated Earnings:

	2010	2011	2012	2013	2014
Revenues	$                                 100,000.00	$                  70,000.00	$                                   120,000.00	$         90,000.00	$        156,000.00
Expenses	$                                   80,000.00	$                  55,000.00	$                                   110,000.00	$         95,000.00	$        124,000.00
Net Income (Loss) or Current Earnings	$                                   20,000.00	$                  15,000.00	$                                     10,000.00	$         (5,000.00)	$           32,000.00
Accumulated earnings - Beginning balance	$                                                  -	$                  20,000.00	$                                     35,000.00	$         45,000.00	$           40,000.00
Add: Net Income (Loss) or Current Earnings	$                                   20,000.00	$                  15,000.00	$                                     10,000.00	$         (5,000.00)	$           32,000.00
Accumulated earnings - Ending Balance	$                                   20,000.00	$                  35,000.00	$                                     45,000.00	$         40,000.00	$           72,000.00

• Above table shows that Accumulated earnings include Current earnings of all the periods over years.