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Questions
What are retained earnings?
What is retained earnings?
What is ploughing back of profits?
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Solution 1
- Retained profits are also known as ploughing back of profits, self-financing, or internal financing.
- Because retained profits belong to shareholders, they are considered ownership funds.
Solution 2
Generally, the profit the company earns during a financial period is paid out to its shareholders as dividends. However, sometimes a portion of the company’s profit is retained, i.e., not distributed as a dividend. It is reinvested in the business. This is known as retained earnings or ploughing back of profit.
Notes
Students should refer to the answer according to their questions.
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