What Is Retained Earnings? Definition & Example

Retained earnings is the cumulative total of all the profit your business has kept — earned but not distributed to owners — across its entire lifetime.

Each period, your net income either gets paid out to owners (as distributions or dividends) or stays in the business. Whatever stays accumulates in retained earnings, which lives in the equity section of your balance sheet. It's a running scoreboard of reinvested profit.

What it tells you: healthy, growing retained earnings signal a business that has been consistently profitable and has funded its own growth. Negative retained earnings (an 'accumulated deficit') signal cumulative losses over time. Lenders and investors read it as a track record.

A common misconception: retained earnings is not a pile of cash sitting in the bank. It's an accounting total that may have been reinvested into equipment, inventory, or paying down debt. The cash and the retained-earnings figure are two different things.

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Retained Earnings FAQ

What is retained earnings?

Retained earnings is the running total of all profit a business has kept rather than distributed to owners, accumulated over its lifetime. It appears in the equity section of the balance sheet.

Is retained earnings the same as cash?

No. Retained earnings is a cumulative accounting figure, not a cash balance. The profit it represents may have been reinvested in equipment, inventory, or debt repayment, so the retained-earnings number and your bank balance are usually very different.

Part of the Tides Bookkeeping Glossary — and the complete guide to small business bookkeeping.