Final answer:
Retained earnings are profits earned by a company that have not been paid to stockholders at the end of an accounting period. They are reinvested back into the company to fund future growth and expansion.
Step-by-step explanation:
Profits earned by a company that have not been paid to stockholders at the end of an accounting period are called retained earnings. These earnings are typically reinvested back into the company to fund future growth and expansion.
Retained earnings are a crucial component of a company's financial statement and are found in the shareholders' equity section. They represent the accumulated profits that have not been distributed to the stockholders as dividends.
For example, if a company generates $1 million in profits but pays out only $500,000 as dividends, the remaining $500,000 would be considered as retained earnings.