Undistributed profits
Also called: Retained earnings, UP · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"
Meaning
Undistributed profits, also called retained earnings, are the part of the profits of firms and government enterprises that is not paid out to the factors of production. Firms usually keep this money to reinvest or hold as reserves. It is part of national income but never reaches households, so it is subtracted from national income to get personal income.
Example
Raju the barber's shop earns ₹420 of factor income (NNP at factor cost) in a day. He keeps ₹220 in the business as retained earnings. So only ₹200 counts as personal income.
Don't confuse with
- Dividends: dividends are the part of profits that is paid out to shareholders. They reach households and stay in personal income.
- Corporate tax: this is also deducted from national income to get personal income, but it goes to the government, not into the firm's reserves.
Related concepts
- Gross National Product
- Net factor income from abroad
- Normal residents
- Domestic territory
- Net Domestic Product
- NDP at factor cost
- Net National Product
- GNP at factor cost
- National income
- Personal income