Technical definition
Cumulative profit kept in the business after losses and distributions to owners.
How it works
Ending retained earnings equal opening retained earnings plus net income minus distributions, subject to prior-period adjustments. The balance links current and past performance to equity.
Everyday example
Opening retained earnings 10,000 + net income 6,000 − dividends 2,000 = ending retained earnings 14,000.
Common pitfall
Retained earnings is an equity account, not a bank account or ring-fenced cash reserve.