What is Retained Earnings?
The running total of profits reinvested in the business rather than distributed to owners.
Retained Earnings: definition
Every period, net income either leaves the business as dividends or stays as retained earnings. Over time, retained earnings accumulate into a running total of reinvested profit, funding growth without new outside capital. A negative balance - an accumulated deficit - signals cumulative losses. Retained earnings link the income statement to the balance sheet each period.
Retained earnings roll-forward
Ending Retained Earnings = Beginning + Net Income − Dividends
Profit adds to retained earnings; losses and dividends reduce them. The ending balance carries forward as the next period beginning balance.
How Fintra handles it
Fintra rolls net income into retained earnings automatically at each period close, so equity stays accurate without a manual closing entry. Because dividends and distributions are tracked on the same model, the retained-earnings roll-forward is always reconciled and auditable.
- Net income rolled into retained earnings automatically at close
- Dividends and distributions tracked and netted in the roll-forward
- Retained-earnings reconciliation available for audit
Worked example
Frequently asked questions
Are retained earnings the same as cash?
No. Retained earnings measure cumulative reinvested profit, not cash on hand. That profit may have been used to buy inventory, equipment, or pay down debt, so a business can have large retained earnings and little cash, or vice versa.
Can retained earnings be negative?
Yes - cumulative losses or dividends exceeding profits create a negative balance called an accumulated deficit. It is common for early-stage companies that have invested ahead of profitability and reduces total equity.
How do dividends affect retained earnings?
Dividends are paid out of retained earnings, reducing the balance. A business can only pay dividends to the extent it has retained earnings (and cash) available. Reinvesting instead of paying dividends grows retained earnings faster.
What is the difference between retained earnings and revenue?
Revenue is the top-line sales for a single period. Retained earnings are the cumulative bottom-line profit kept across all periods after dividends. Revenue feeds net income, and net income feeds retained earnings.
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