Appropriated Retained Earnings

Posted in Finance, Accounting and Economics Terms, Total Reads: 291
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Definition: Appropriated Retained Earnings

Appropriated retained earnings are funds from a company's revenues which are utilized by the top management, not for payment of dividends, but for other business purposes. These are not given to the other shareholders of the organization.


Example: Company XYZ plans to bring out a new product and needs to invest $100,000 in Research and Development. The company has a net income of $100,000 and pays no dividends to its shareholders. The new product is expected to be developed by the end of the year.

Net Income

$100,000

Dividends

0

Retained Earnings

$100,000


Journal Entry:


Debit

Credit

Retained Earnings

$100,000


Appropriated Retained Earnings-
R&D


$100,000

At the end of 1st year:




Debit

Credit

Appropriated Retained Earnings-
R&D

$100,000


Retained Earnings


$100,000


The most important aspect of these are for business improvement purposes which include R&D, developing new markets, banking transactions, legal fees, enhancing existing processes & infrastructure etc. The control of these earnings is entirely in the hands of the top management.


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