When you start a business, you eventually start gaining the profits.So, is the entire profit given back to the owner? NO. It is because company would love to invest profit to the business again for future operations. Retained earnings are the part of net profit after tax that company has retained by not distributing to the shareholders to realize certain debts or used as an investment for future expansion plans. It is an important source of internal or self-financing by a company. So, retained earnings are the cumulative amount of profit or loss left after paying all the expenses and dividend to the shareholders. The cumulative here means it is a continuing account year after year and doesn’t close at the end of the accounting year. The retained earnings are also known as earned surplus, retained capital, plowing back of profits or accumulated earnings.
about 10 months ago