So, we talked about how stockholders' equity is two components, contributed capital, which is the money that we raised from shareholders, and retained earnings, which is what we create by operating the business. Retained earning is going to equal whatever retained earnings were at the beginning of the period plus any net income, earned during the period minus any dividends paid out to shareholders. That's why it's called retained earnings, because it's the earnings or net income less any dividends paid out.
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And then net income, as we talked about in a prior video, is revenues minus expenses. So, if we put all of this into the balance sheet equation we get one big complete balance sheet equation, which is assets equal liabilities plus contributed capital, plus your prior retained earnings, plus revenues, minus expenses, minus dividends that you pay during the period. >> Are you going to make us do some mathematics with this?
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>> Why, yes. I am going to ask you to do some math. Now I'm going to give you some problems, give you a chance to try to answer the problems, and then we'll talk through the answers. After I read the problem, you'll see a little pause icon on the screen. If you want to try to answer the problem before I give you the answer, pause the video at this point, try to come up with the answer and then resume the video. But, if you want to just roll through and hear the answer right away, then it's okay to keep the video going. This is going to be the procedure that we follow any time that I give you some questions that I wanted to, want you to try to answer during the video lectu