Retained Earnings
Definition
The cumulative profit a business has earned since inception, less every dividend or distribution paid out. It sits in equity on the balance sheet and is the link between the profit and loss statement and the balance sheet each period.
Related Terms in Core Accounting
Owners Draw
Money or assets a sole proprietor or partner takes out of the business for personal use. A draw reduces equity rather than appearing as a business expense, so it never affects reported profit, and it is not payroll. Owners of corporations take salary or dividends instead.
Capital Expenditure (CapEx)
Spending to acquire or improve a long-lived asset, capitalised on the balance sheet and then depreciated over its useful life rather than expensed at once. Buying a delivery van is capital expenditure; fuelling it is an operating expense.
Operating Expense (OpEx)
The day-to-day cost of running the business, charged against profit in the period it is incurred: rent, salaries, software subscriptions, utilities and professional fees. Contrasted with capital expenditure, which is capitalised and depreciated.
Prepaid Expenses
Amounts paid in advance for goods or services the business has not yet consumed, carried as a current asset and released to expense as the benefit is used. Annual insurance premiums, software licences and advance rent are the usual cases.
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