3/12/18 Retained earnings v. Reserves

 

* Retained earnings (RE) are the sum of a company’s profits since the company’s inception that are set aside and not paid as dividends. They are also called earned surplus, retained capital or accumulated earnings. The company may choose to use these earnings in a number of ways:  to invest and expand the existing business operations, to purchase new equipment, to repay any outstanding loan, etc.

* Reserves are very similar in that they are a part of retained earnings. However, reserves are normally set aside to provide specifically for business needs in the future or to fulfill future contingencies and unexpected liability.