Retained Earnings
Definition
Retained earnings is the cumulative profit a business has earned and kept, minus any distributions to the owner. It is part of equity on the Balance Sheet.
Example
A business earned $30,000 in profit over two years and the owner took out $10,000 in draws. Retained earnings is $20,000.
Why It Matters
Retained earnings shows how much profit has been reinvested in the business rather than distributed to the owner.