Follow the movement over time
A simplified movement starts with opening retained earnings, adds the period's net income or subtracts its loss, and deducts dividends. Prior-period adjustments and other circumstances may also affect the accounts, so the actual statement needs to be read in context.
The resulting balance is part of the accounting history of the company. It is not a cash allocation waiting untouched in the bank.
Why a large balance can coexist with little cash
Past profits may have funded equipment, inventory, debt repayments or outstanding customer balances. Those uses can leave the corporation with retained earnings but limited immediate cash.
For example, a business may have earned profits and then bought machinery used in operations. The value has changed form. A shareholder looking only at retained earnings could miss the need to fund payroll or supplier commitments.
Before an owner takes money out
Review liquidity, tax balances, shareholder accounts and the legal and tax requirements governing the proposed payment. Salary, dividends, expense reimbursements and loan repayments are different transactions; they should not be chosen simply to clear a bookkeeping balance.
Ask your accountant to explain both the company's position and the owner's circumstances. The financial statements support that discussion, but one equity number cannot answer it alone.
Sources & editorial notes
Sources checked October 23, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.