At the beginning of year 1, what are a company's retained earnings?

At the beginning of year 1, a company’s retained earnings typically start at zero, especially for a new entity. Retained earnings reflect the cumulative profits that have been retained in the company after dividends are paid to shareholders. Since it is the beginning of operations, the company has not had any previous years of profit or loss to carry forward, resulting in a retained earnings balance of $0.

As the company operates and generates profits (or incurs losses), retained earnings will change over time based on these results. Therefore, it is accurate to say that a company’s retained earnings at the very start of its first fiscal year will be zero. This principle sets the foundation for understanding how retained earnings accumulate through profits over future accounting periods.