With corporate accounting practices, accumulated income is defined as profit that is held rather than distributed to shareholders in the form of dividends. Holding such profits serve the purpose of having funds available to advance business interests, make investments, support research and development, and to acquire assets through capital expenditures. The balance sheet of a corporation records accumulated income as a line item underneath the shareholder’s equity. As well, accumulated income may also be used to pay down debt the corporation has incurred as a result of borrowing. Since it is not distributed, such retained income is not usually taxed as long as it is contributed towards reasonable business expenses.
Another term used to refer to accumulated income is appropriated retained earnings. Once the income accumulated is set aside for a specific purpose, accountants will refer to that income as such. For example, if a corporation decides to build a new research facility, the corporation will typically establish a budget to complete the project and appropriate the required funds. Upon completion of the project, if the total expenditures fall under the budget established, accountants will return the funds back under the appropriated retained earnings category on the balance sheet. Such earnings are never redistributed to shareholders under any circumstances.
Some nations allow non-profits and non-governmental organizations operating off of donations to also hold accumulated income that is not used for charity. Regulations usually require a certain amount of funds to be set aside for that purpose if the organization does not apply a specified percentage of its income for charity. Much like corporations, this income is set aside for future business application or even charitable purposes. Unlike corporations, however, non-profits sometimes must specify how the funds will be used and usually have a limit for the amount of time the funds can be held. Failure to do so may result in regulatory authorities conducting an audit of the organization's finances.
Organizations involved in charity may also accumulate a small portion of their income and set it aside specifically for business related interests or investments. These funds often have no limits for how long the charitable organization may hold them. All accumulated income above that small percentage usually falls under the aforementioned guidelines when not used for charity in the year in which it was received. Regulations, however, do vary considerably among nations for charitable organizations, while they are usually consistent for corporations.