What is the definition of retained earnings?

What is the definition of retained earnings?

• A. A company's accumulated net income that has not been paid to shareholders
• B. The total cash reserves
• C. The par value of stock
• D. The market value of assets

Answer: (A)

Retained earnings represent the portion of a company’s profits that has been kept in the business rather than distributed to shareholders. It is the cumulative total on the balance sheet, formed by taking beginning retained earnings, adding net income, and subtracting dividends paid to shareholders. This amount reflects funds the company has reinvested in operations, growth, or debt reduction, rather than cash distributed to owners. It is a part of shareholders’ equity, not cash reserves, not the par value of stock, and not the market value of assets. So the definition is the company's accumulated net income that has not been paid to shareholders.

Retained earnings represent the portion of a company’s profits that has been kept in the business rather than distributed to shareholders. It is the cumulative total on the balance sheet, formed by taking beginning retained earnings, adding net income, and subtracting dividends paid to shareholders. This amount reflects funds the company has reinvested in operations, growth, or debt reduction, rather than cash distributed to owners. It is a part of shareholders’ equity, not cash reserves, not the par value of stock, and not the market value of assets. So the definition is the company's accumulated net income that has not been paid to shareholders.