Which balance sheet component could be described as accumulated profits reinvested in the business and not distributed as dividends?

Which balance sheet component could be described as accumulated profits reinvested in the business and not distributed as dividends?

• A. Retained earnings
• B. Common shares
• C. Deferred revenue
• D. Accrued expenses

Answer: (A)

Retained earnings are the accumulated profits a company has earned and kept in the business instead of paying them out as dividends. This figure is the running total of net income minus dividends over time and sits in shareholders’ equity on the balance sheet. It grows whenever the company earns more than it distributes and shrinks if there are losses or if it pays dividends that exceed current earnings. In contrast, common shares are contributed capital, deferred revenue is money received before delivering goods or services (a liability), and accrued expenses are unpaid costs (also a liability). So retained earnings best describe the idea of profits reinvested in the business.

Retained earnings are the accumulated profits a company has earned and kept in the business instead of paying them out as dividends. This figure is the running total of net income minus dividends over time and sits in shareholders’ equity on the balance sheet. It grows whenever the company earns more than it distributes and shrinks if there are losses or if it pays dividends that exceed current earnings. In contrast, common shares are contributed capital, deferred revenue is money received before delivering goods or services (a liability), and accrued expenses are unpaid costs (also a liability). So retained earnings best describe the idea of profits reinvested in the business.