What is retained earnings?

Definition of Retained Earnings

Generally, retained earnings is the cumulative amount of earnings since a corporation was formed minus the cumulative amount of dividends it has declared since it was formed. In other words, retained earnings is the corporation's past earnings that have not been distributed to the corporation's stockholders.

The amount of a corporation's retained earnings is reported as a separate component of the stockholders' equity section of the balance sheet.

Additional Information

Even if a corporation has a large positive amount of retained earnings, you cannot assume that the corporation has a large amount of cash. Often a corporation will use its cash to buy additional property, plant and equipment, or to reduce the corporation's liabilities.

If a corporation's retained earnings becomes a negative amount (perhaps from years of losses), the balance sheet will use the term deficit or accumulated deficit instead of retained earnings.