Glossary · Also called Retained profit
Retained earnings
The profit a company has kept over the years instead of paying it all out as dividends.
What it means
The accumulated profits of a company retained in the business after dividends and transfers to reserves.
Example
Opening retained earnings of RM40,000 plus RM15,000 profit less RM5,000 dividend gives RM50,000.
Why it matters
It is part of shareholders' equity and funds growth without new borrowing or share issues.
In practice
Retained earnings is a reserve shown under equity in the statement of financial position. It is the running total of profits kept in the business since it began, after dividends and any transfers to other reserves. Each year's movement is set out in the statement of changes in equity. Start with the opening balance, add profit for the year, then subtract dividends paid and any amount moved to a general reserve.
If a company starts the year with retained earnings of RM40,000, earns a profit of RM18,000 and pays dividends of RM6,000, it carries forward RM52,000.
Students often confuse retained earnings with a general reserve. Both are reserves within equity. Retained earnings is the undistributed balance available for future dividends. A general reserve is profit deliberately set aside for no specific purpose. Retained earnings also differs from profit for the year. That is one period's result. Retained earnings is the amount built up over many periods.
If the statement of changes in equity feels confusing, one of our teachers can build one with you line by line. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.3 Limited companies (page 16).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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