[medina1]

I am confused... do I calculate retained earnings as an expense because they will be paid out or leave them as an asset?

[pready]

Retained earnings is neither an expense or an asset. It is Owners Equity and represents the amount of income that the company has retained in the business.

Retained earnings is the beginning balance + net income for the period - any dividends declared or paid in the period.

[morgaine300]

As an added note, don't confuse "paid out" with expenses. Those are not synonymous. "Paid out" simply means something came out of cash -- it might be an expense or the purchase of an asset or paying a creditor or, yup, dividends that come off retained earnings.

Expenses are when someone does a service for you or provides something for you, and also the consumption of assets. When they are paid is not relevant in an accrued basis accounting, so don't even have to be paid at the same time.