Retained equity is the cumulative net income a company has kept rather than distributed to its owners, carried inside the equity section of the balance sheet as its own caption. In US financial reporting the phrase is the informal surface form. The caption that appears on US financial statements and on the corporate return is retained earnings, and that is the wording to use anywhere a client, a lender or a reviewer will read it.
The Caption US Rules Actually Use
Regulation S-X sets what has to appear inside the equity block of a balance sheet filed with the SEC, and the separate caption it requires for this balance is retained earnings, shown appropriated and unappropriated (17 CFR 210.5-02). Retained equity is not a caption there. The rest of that list, and the note that lets two of those captions fold into the stock caption they apply to, are in additional paid-in capital.
The corporate return uses the same two words. Schedule L on Form 1120 reports appropriated retained earnings on line 24 and unappropriated retained earnings on line 25 (IRS, Form 1120). How that balance moved between two dates, the schedule on the return that analyzes the movement, and why the balance is not cash, are in the statement of retained earnings. The captions sitting beside it, capital stock and additional paid-in capital above, treasury stock below, are in stockholder equity.
What Retained Equity Is Not
It is not the whole of the owners’ stake. It is one caption inside the residual left after liabilities come off assets, and that residual is owner’s equity.
It is not the statement of retained earnings. One is a single figure at a single date, the other reconciles the opening balance to the closing one.
Where a Firm Meets the Number
Revenue and expense do not reach retained earnings during the year. Those accounts hold the period’s activity until the books are closed, so a trial balance pulled mid-year still shows last year’s closing retained earnings while this year’s result sits in the temporary accounts. The close moves it, and so does a declared distribution, which debits the account on the date the board declares rather than the date the cash goes out, worked through in the dividend payable account.
After a Quasi-Reorganization
A negative balance is still this account, and Regulation S-X reaches that case in one place. A quasi-reorganization eliminates the deficit and starts retained earnings again from a new date, and the regulation makes both of those visible on the statements. For at least 10 years after the effective date of a quasi-reorganization, any description of retained earnings has to indicate the point in time from which the new retained earnings dates, and for at least three years the total amount of the deficit eliminated has to be shown on the face of the balance sheet (17 CFR 210.5-02).
Is It Good to Have Retained Earnings?
The balance is not a verdict on the business. It records what has been kept rather than paid out since the account opened, and says nothing about whether that money is still on hand, so it is read next to cash and liabilities on the same sheet rather than on its own.
Accountably places trained offshore accountants inside US CPA and EA firms, and a trial task lets a firm grade a real block of its own close and reporting work before a client file depends on it.
