Retained earnings.
In plain English
Retained earnings are the running total of a company's profits that have been kept in the business instead of distributed to owners or shareholders. Each period, profit either goes out as dividends or draws, or stays in and adds to retained earnings, which fund growth, equipment, or a cash cushion. They appear in the equity section of the balance sheet and can be negative, called an accumulated deficit, if the business has lost money overall. Retained earnings are a measure of reinvested profit over the company's life, not cash sitting in a bank account.
01Why it matters
Retained earnings show how much profit a business has plowed back into itself, a key signal of whether it is funding its own growth or paying everything out.
02The math, step by step
A business earns 50,000 dollars in profit, pays 20,000 dollars to its owner, and keeps 30,000 dollars. That 30,000 dollars adds to retained earnings and can fund next year's equipment or expansion.
03What this is NOT
Retained earnings are NOT the same as cash on hand. They are cumulative reinvested profit; the money may already be tied up in equipment, inventory, or receivables rather than sitting in an account.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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