At the end of the year, Phil's Pool and Spa has money in a retained earnings account. The amount in this account represents profits the company kept and reinvested in the firm's assets.
After paying all direct and indirect costs, income taxes, and dividends to shareholders, a company's retained earnings are the amount of profit left over.
This is the portion of the company's equity that can be used to invest in new equipment, research and development, and marketing, for example.
Thus, the amount in this account represents profits the company kept and reinvested in the firm's assets.
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