What Are Accumulated Retained Earnings?

by Carol Wiley

When a corporation keeps its earnings rather than distributing the money to shareholders, those earnings are called retained earnings. Because retained earnings accumulate from accounting period to accounting period, they are also called accumulated retained earnings.


Corporations can use retained earnings to pay off debt or to reinvest in the company, both of which can improve the future earnings of the corporation. Some accumulated earnings, called retention funds, are also used to pay for continuing company operations. Retention funds are a portion of retained earnings the company sets aside to ensure having money to cover the cost of ongoing operations.

Effect on Investors

According to mysmp.com, a website about stock trading, when a company retains earnings rather than paying dividends, shareholders are not getting an immediate return on their investment. For this reason, companies that retain earnings are often not the best choice for investors interested only in short-term gains. However, investors interested in long-term gains realize that retained earnings offer the potential for higher earnings in the future through debt reduction, which gets rid of future interest payments, and investment in equipment that can improve the company's performance.

Accumulated Retained Earnings Statement

An accumulated retained earnings statement accompanies an income statement and shows the changes in the corporation's retained earnings during the period covered by the income statement. For example, a calendar-year accumulated retained earnings statement would show the amount of accumulated retained earnings on Jan. 1, additions from profits during the year, decreases due to either shareholder dividends or transfers to capital accounts, and the amount of accumulated retained earnings on Dec. 31. A company reports accumulated retained earnings as part of the Stockholder’s Equity disclosures.

Accumulated Losses

If a company loses money, it may have accumulated losses. These losses offset accumulated earnings and decrease the corporation's taxes. The effect of accumulated losses on shareholders is to decrease the equity value of their stocks.


If a corporation has more than $250,000 in accumulated retained earnings, the money is subject to a retained earnings tax. The federal government set up this tax to encourage corporations to distribute profits from time to time, which also increases tax revenue for the federal government because dividends are taxable.

About the Author

Carol Wiley started writing as a technical writer/editor in 1990, was a licensed massage therapist for almost 12 years and has been writing Web content since 2003. She has a Bachelor of Science in aerospace engineering, a Master of Business Administration, a Certificate in Technical Writing and Editing and a Certificate in Massage Therapy.

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