Definition
The term unappropriated retained earnings refers to the net income of a company that has not been allocated by management or the board of directors to a specific purpose. Unappropriated retained earnings are usually distributed to shareholders as dividends.
Explanation
The retained earnings of a company are the portion of net income that is not distributed to common or preferred stockholders in the form of dividends, and is held by the company for future use. Retained earnings appear in the owner's equity section of the company's balance sheet.
While some of these profits can be held as cash, they can also be used to purchase or build new assets. When this money is expected to be used for this purpose, the retained earnings are said to be appropriated. Dividends are typically paid to preferred and common stockholders from unappropriated retained earnings.
Unappropriated retained earnings can also be restricted, especially if the company has both preferred and common stock. For example, the preferred stockholders can have priority over the holders of common stock. In this case, the payment of dividends from unappropriated retained earnings is also said to be restricted.
Related Terms
balance sheet, retained earnings, appropriated retained earnings, liquidating dividend
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