Define the term 'retained earnings'.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [1] Retained earnings (profit) is the profit left after all deductions, including dividends, have been made
2. [1] this is ploughed back into the business as a source of finance
3. [1] Part of the profit that is reinvested in the business
4. [1] rather than distributed to shareholders
5. A definition that merits 2 marks will contain 2 of the 4 points listed above.
6. A partial definition could be 'money put back in the business' worth 1 mark or contains only 1 of the 4 points above.
7. (2 marks) Sound definition given
8. (1 mark) Partial definition given
9. (0 marks) No creditable content
10. [Explanation] income statements record the revenue, costs and profit (or loss) of a business over a given time
11. [Explanation] provides information on the gross and operating profit of a company and shows how the operating profit is split between dividends to shareholders and retained profits
12. [Explanation] can be used to measure and compare business performance over time and with other companies (ratios can be calculated to help with this analysis)
13. [Explanation] used to see where costs could be reduced to increase profits
14. [Explanation] actual profit data can be compared with expected levels of profit
15. [Explanation] provide evidence for a bank loan
16. [Explanation] all this information is useful for senior managers as they review the health of the organisation and make corporate decisions
17. [Explanation] as important internal stakeholders they may well use the information of a strong set of figures in the income statement to push for improved rates of remuneration and/or propose changes in direction for the business
18. [Explanation] the information in the income statement will provide vital management information as senior managers review and plan for the future of the business
19. (3 marks) Sound explanation of two uses of income statements for senior managers
20. (2 marks) Sound explanation of one use or partial explanation of two uses of income statements for senior managers
21. (1 mark) Partial explanation of one use or a list of two uses for senior managers.
22. (0 marks) No creditable content