Glossary · Bookkeeping & QuickBooks term
Retained earnings
The cumulative net profit a business has kept — not paid out to owners — since it began. An equity account on the balance sheet that each year’s profit rolls into.
In plain terms
What retained earnings means.
Retained earnings is the running total of all the net profit a business has earned and kept — rather than distributed to its owners — since it started. It is an equity account on the balance sheet, part of what the business is worth to its owners.
At the end of each fiscal year, the period’s net income (from the P&L) closes into retained earnings, and the P&L resets to zero for the new year. QuickBooks does this roll-forward automatically.
A wrong retained-earnings balance is a red flag.
Because retained earnings accumulates every year’s result, errors compound there: a prior-period correction posted to the wrong place, owner draws miscategorized as expenses, or a botched year-end close can leave retained earnings wrong — and since it carries forward forever, the error follows the books indefinitely until found.
An unexplained or moving retained-earnings balance is a classic signal the books need a cleanup, because it usually means prior periods weren’t closed cleanly.
Put it to work
Retained earnings that don’t make sense?
A Certified ProAdvisor traces the balance back through your closes and corrections to find why it’s off — written fixed-fee scope.