Earned capital

Definition

Earned capital, also known as retained earnings, represents the cumulative profits that a corporation has reinvested in the business rather than distributed to shareholders as dividends. It is a key component of shareholders' equity on the balance sheet.

5 Must Know Facts For Your Next Test

1. Earned capital accumulates from net income after dividends are paid out.
2. It is reported under shareholders' equity on the balance sheet.
3. Earned capital can be used for reinvestment in the business, debt repayment, or other corporate purposes.
4. A high amount of earned capital indicates strong profitability and potential for growth.
5. Negative earned capital means the company has more cumulative losses than profits.

Review Questions

Related terms

Shareholders' Equity: The residual interest in the assets of the entity after deducting liabilities, which includes both contributed and earned capital.

Contributed Capital:

The total value of cash and other assets that shareholders have given to a corporation in exchange for shares of stock.

Dividends:

Payments made by a corporation to its shareholder members, usually derived from profits or reserves.