Retained earnings
Retained earnings are accumulated profits and losses retained in the business after distributions and other relevant transfers. They form a component of equity and do not represent a separate pool of cash. The dividend reduces equity when recognised; the remaining earnings may be represented by many assets, not necessarily cash.
Worked example
A company begins with retained earnings of 5,000, earns 2,000 and declares a 500 dividend; the closing balance is 6,500 before other movements.
Common mistake
Assuming retained earnings must equal the bank balance.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: retained profits