What is retained profit?

• A. Profit paid as dividends
• B. Profit kept in the business and reinvested
• C. Money borrowed
• D. Assets depreciated

Answer: (B)

Retained profit is the portion of a company’s net profit that isn’t paid to shareholders as dividends but is kept inside the business to finance reinvestment and strengthen finances. It becomes part of the shareholders’ funds as retained earnings and can be used to buy new assets, fund expansion, or improve working capital. This is an internal source of finance, unlike money borrowed from outside (debt) and unlike depreciation, which is a non-cash accounting charge that doesn’t represent cash kept in the business. So the description “profit kept in the business and reinvested” best captures what retained profit means.