Updated
Closing retained earnings = opening retained earnings + net income − dividends
What retained earnings means
Retained earnings is cumulative corporate profit or loss kept in the business after distributions. It is part of equity, not a separate bank balance. A company can report retained earnings while its cash is tied up in receivables, inventory or equipment.
Definition sources
SEC — Balance Sheet Building Blocks describes retained earnings or accumulated loss as cumulative net profit or net loss since inception. SEC — Income Statement Building Blocks explains that net income increases retained earnings and net loss reduces it.
Roll-forward formula
Closing retained earnings = opening retained earnings + net income − dividends, before any other applicable adjustments. A net loss reduces the balance. This is an accounting reconciliation, not a measure of cash available to distribute.
What to check
Use the same reporting period and reconcile the balance to the statement of changes in equity. Keep contributed capital separate from accumulated earnings. Distribution and tax rules vary by entity and jurisdiction; this definition is not a recommendation to distribute cash.
General education only.
Questions owners ask
Are retained earnings cash in the bank?
No. The balance records accumulated profit or loss, not where the assets are held.
How does a net loss affect retained earnings?
A net loss reduces retained earnings; a net profit increases it before dividends and other applicable adjustments.
Are owner contributions retained earnings?
No. Contributed capital is separate from accumulated profits or losses.