Which statement best defines retained profits?

• A. Previous profits that have been put back into the business
• B. Profits paid out to shareholders as dividends
• C. Total value of all assets
• D. Money the business owes to others

Answer: (A)

Retained profits are profits kept in the business after any dividends are paid, to be reinvested for growth. This internal source of finance builds up as earnings are kept rather than distributed, allowing the company to fund expansion, replace equipment, or pay down debt without seeking external funding. So the statement describing profits that have been put back into the business matches this idea precisely. The other options describe dividends, total assets, or liabilities, which are not retained profits.