ACCUMULATED EARNINGS AND PROFITS

An accounting term applicable to stockholders of closely held businesses. Accumulated earnings and profits are a company's net profits after deducting distributions to the stockholders. This is calculated as of the beginning of the year.

Accumulated earnings and profits are similar to retained earnings, because both terms refer to the net profits of a company after shareholder distributions. However, accumulated earnings and profits also can include reserve accounts, which are not deductible and which can be included when computing taxable earnings.