What is a retained loss?

A retained loss is a loss incurred by a business, which is recorded within the retained earnings account in the equity section of its balance sheet. The retained earnings account contains both the gains earned and losses incurred by a business, so it nets together the two balances. Thus, obtaining the cumulative retained losses of a business can be difficult to derive, unless the business has incurred nothing but losses since its inception.

If a business has a cumulative retained loss (also known as negative retained earnings), then it has a debit balance in the retained earnings account. The account normally has a credit balance, which is caused by the cumulative generation of profits over time.

If a corporation has a retained loss, this does not mean that the shareholders must pay the amount of the loss to the company; shareholders are only liable for their investment in the business, so the company may have to offset its retained losses by other means, such as:

• Reducing its investment in working capital
• Selling more shares to investors
• Obtaining loans from lenders

A retained loss is only caused by expenses being greater than revenues. It is not caused by the issuance of a dividend to shareholders.

Similar Terms

A retained loss is also known as an accumulated loss or an accumulated deficit.

Related Topics

What are retained earnings?
What are the stockholders' equity accounts?
What is a capital surplus?
What is earned capital?
What is the retained earnings formula?