Retained earnings

Meaning

Retained earnings (الأرباح المحتجزة) are the part of equity built from profit. Each year's net profit is added to them when the books are closed, a loss is taken off, and dividends or drawings paid to the owners are deducted. What remains is the profit the business has chosen to keep and reinvest, in stock, equipment or simply cash at the bank.

The figure sits in the equity section of the balance sheet, beside the capital the owners put in and any reserve the company's articles of association require. A negative balance is called accumulated losses and is watched closely: in a Saudi company, losses reaching half of the capital oblige the managers to act under the Companies Law. Retained earnings are not cash; a profitable company can have large retained earnings and an empty bank account.

Also called: accumulated profits · retained profits · الأرباح المحتجزة · الأرباح المبقاة

Example

Al Noor Trading began 2026 with retained earnings of 600,000.00. It earned a net profit of 350,000.00 and paid its partners dividends of 150,000.00 in March. At 31 December 2026 the balance sheet shows retained earnings of 800,000.00: 600,000.00 plus 350,000.00 less 150,000.00.