What does retained earnings refer to in a business context?

Retained earnings represent the portion of a company's net income that is kept in the business rather than distributed to shareholders as dividends. This figure accumulates over time and reflects a company's ability to generate profit and reinvest it for future growth, stability, or debt reduction. By retaining earnings, a company can finance new projects, purchase assets, or bolster its equity base, which can enhance its financial position.

Maintaining retained earnings is a strategic decision made by management to support the long-term growth of the business and is often seen as a sign of fiscal health. The retained earnings account is a key component of shareholders' equity on the balance sheet and is crucial for assessing a company's overall performance and prospects.

In contrast, the other options represent different financial concepts. Distributing profits to shareholders refers to dividends, while accrued liabilities pertain to unpaid expenses. Investments made by the owners signify contributions to the business's initial capital or further funding, which do not affect retained earnings in the same way. Thus, the concept of retained earnings is most accurately captured by the notion of undistributed profits after dividends are paid out.