Retained Earnings

Retained earnings are the portion of a company’s profits that are not paid out as dividends to shareholders, but instead are reserved for reinvestment back into the company. This money is used to finance operations, pay off debt, and fund new projects. Retained earnings are reported on the balance sheet as a part of shareholders’ equity.

History of Retained Earnings

Retained earnings have been used by companies since the early days of business. The concept of retained earnings was first introduced in the United Kingdom in the early 19th century. The idea was to allow companies to reinvest their profits back into the business, rather than paying them out as dividends to shareholders. This allowed companies to grow and expand their operations, while still rewarding shareholders with dividends.

In the United States, the concept of retained earnings was first introduced in the early 20th century. The Securities and Exchange Commission (SEC) began requiring companies to report their retained earnings on their balance sheets in 1934. Since then, retained earnings have become an important part of a company’s financial statements.

Comparison of Retained Earnings

Summary

Retained earnings are the portion of a company’s profits that are not paid out as dividends to shareholders, but instead are reserved for reinvestment back into the company. This money is used to finance operations, pay off debt, and fund new projects. Retained earnings are reported on the balance sheet as a part of shareholders’ equity. For more information about retained earnings, you can visit the websites of the SEC, the Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants (AICPA).

See Also

• Dividends
• Shareholders’ Equity
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Accounting Principles
• Financial Ratios
• Cash Flow Analysis
• Financial Modeling
• Financial Planning

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