Retained Earnings
Definition
The total profits a business has earned over its life that have been kept in the business rather than paid out to owners.
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Formula
Ending Retained Earnings = Beginning Retained Earnings + Net Income − DistributionsRetained earnings are the link between the P&L and the balance sheet. They show whether profit has been reinvested or taken out.
Changes to closed prior years should only happen deliberately. Watch for: retained earnings that change after a year was closed, which means someone edited old transactions.
Example
Retained earnings of $300,000, plus $180,000 of net income, minus $120,000 of distributions, ends the year at $360,000.