Retained earnings
In accounting, retained earnings means accumulated net income not distributed to owners — where the P&L lands on the balance sheet.
- Layer
- Lexicon
- Defined in
- Lexicon
- Nearby
- 4
Authority
This definition follows ASC 505.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
The lesson that teaches this
Accounting, 0 to 1 — a free course taught end to end on one month of one company, with the spreadsheet exercises to work it yourself.
Retained earnings, in use
Quoted from the 2 documents that use the word — what it does to an interface, in the spec's own sentence.
The eleven continuous assertions — entry balance, accounting equation, subledger ties, schedule ties, roll-forward continuity, cash tie, retained earnings, intercompany, numbering, period integrity, orphans.
A restatement ("Big R", ASC 250-10-45-23) is required when the error is material to the previously issued statements: they are reissued, the cumulative effect lands in opening retained earnings of the earliest period presented, and the error is disclosed.
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
- Retained earningsEvery year's profit or loss since the company started, added up and kept in equity. For most startups it's negative and called an accumulated deficit.
- Chart of accounts for startups: a starting templateA starting chart of accounts for a US startup: number ranges, the expense accounts you need, and when to add an account versus a class or tracking tag.
- How to read an income statement (P&L)Revenue, cost of revenue, gross margin, operating expenses and net income, read line by line, on accrual basis, with the mistakes founders make most.
- Balance sheet explained for startupsAssets equal liabilities plus equity. What each startup line means, from deferred revenue to the SAFE and the accumulated deficit, and why it must balance.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- reserves
- profit
Nearby in the catalog
No component names this concept outright. These are the ones in its part of the system, which is a weaker claim — but a component nothing links to is a component nobody finds.
Terms this one depends on
Also in Foundations
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Retained earnings vs net incomeNet income is one period's profit; retained earnings is the running total of every period's net income less every dividend since the company began — a flow against a balance.Compare
- Journal entry for issuing common stockWhen shares are issued for cash, debit Cash for the proceeds, credit Common stock for the par value of the shares, and credit Additional paid-in capital for everything above par.Entry
- Journal entry for dividendsWhen dividends are declared, debit Dividends declared (or Retained earnings) and credit Dividends payable. When paid, debit Dividends payable and credit Cash. At year-end, close Dividends declared to Retained earnings.Entry
- Journal entry for closing entriesAt the end of the fiscal year, debit every revenue account for its credit balance, credit every expense account for its debit balance, and take the difference — net income — to Retained earnings. Revenue and expense accounts start the new year at zero.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.