Appropriated Retained Earnings

Appropriated retained earnings are retained earnings that are specified by the board of directors for a particular use. Appropriated retained earnings can be used for many purposes, including acquisitions, debt reduction, stock buybacks and R&D. There may be more than one appropriated retained earnings accounts simultaneously.

Typically, appropriated retained earnings are used only to indicate to outsiders the intention of management to use the funds for some purpose. The designation does not serve some internal accounting function. If a company wanted to set aside $20 million for the purchase of a new headquarters, the board would vote to appropriate $20 million of retained earnings for that purpose, and that amount would be entered into an appropriated earnings account on the books. Once the acquisition was complete, that amount would be returned to the main retained earnings account.

Appropriated retained earnings do not have the force of law. If a company were to go bankrupt, the appropriated amounts would return to the main retained earnings account and would be available to creditors and shareholders.