What Is Retained Earnings - Definition - Meaning - Types

Retained Earnings (RE) is the portion of profits retained in the business and it is used to pay Dividend to shareholders or it is the distribution of any portion of investment to shareholders and investors. It is also used in the business to grow it, to payoff debts of the business and other special purposes, especially in case of crisis. Ending or Closing Retained Earnings Account is calculated by preparing  Statement of Retained Earnings or Through Retained Equation Or Formula"

Types of Retained Earnings

There are mainly two types of Retained Earnings:-

(a) Appropriated Retained Earnings / Restricted Retained Earnings

The portion of retained earnings appropriate for the business to be used for some specific purposes, especially in case of disaster, or emergency i.e., during depression period, these funds are used to Stabilize the Business.

(b) Unappropriated Retained Earnings

It is not appropriate for the business as it is that portion of retained earnings that is not considered by top Management or board of directors of the company to be used for special purposes in future i..e., these are used to pay dividend to shareholders, to acquire assets, for paying off debts, etc.

Retained Earnings Account or ledger account is created to record journal entries related to it.