Definition:
Retained earnings are the portion of net income or net profit, taken from the income statement, that are not paid out as dividends, These earnings are reinvested in the company or used for some purpose by the company.
Retained earnings are used to improve the company through investment in research and development, investment in plant and equipment, paying off debt, and other programs.
Retained earnings are cumulative. They represent past as well as present earnings of the firm that have been reinvested in the firm. The retained earnings account under the Shareholder's Equity section of the balance sheet shows the retained earnings since the inception of the company. Retained earnings are cumulative revenues from undistributed profits.
Also Known As: accumulated earnings, earnings surplus, unappropriated profit
Alternate Spellings: none
Common Misspellings: none
Examples:
XYZ Corporation retained 60 percent of its net income for its retained earnings account and paid out 40 percent of its net income as dividends to its shareholders.
