Final answer:
Retained earnings represent the accumulated profits that a company has earned and chosen to reinvest back into the business instead of distributing them to shareholders as dividends or making other payouts. Contributed capital refers to the funds or assets that shareholders invest in the company in exchange for ownership shares.
Step-by-step explanation:
The company's earnings over its whole life, minus any payouts, are referred to as retained earnings.
Retained earnings represent the accumulated profits that a company has earned and chosen to reinvest back into the business instead of distributing them to shareholders as dividends or making other payouts. These earnings are typically used for business expansion, research and development, acquiring assets, or paying off debts. Retained earnings play a crucial role in a company's growth and financial stability.
On the other hand, contributed capital refers to the funds or assets that shareholders invest in the company in exchange for ownership shares. This capital can be in the form of cash, property, or other valuable assets.
In summary, when a company's earnings are retained and not distributed to shareholders, it increases the amount of retained earnings. Contributed capital represents the initial investment made by shareholders to acquire ownership in the company.