What does earnings and profits mean on the CPA exam?
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Earnings and profits. A corporation's cumulative economic capacity to pay a distribution out of earnings rather than out of capital. It is a tax account of its own, close to but not the same as retained earnings, and a distribution is a dividend only so far as it reaches.
Defined against Sec. 312.
Other names for earnings and profits
E&P, earnings and profits account
Related terms
- accumulated earnings and profits: The C corporation earnings and profits an S corporation carries into S status.
- retained earnings: Cumulative profit the entity has kept rather than paid out as dividends.
- treasury stock: A company's own shares reacquired and not retired.
- change in accounting principle: A switch from one acceptable principle to another, allowed only when a new standard requires it or the new principle is preferable.
- equity method: Used when the investor can exercise significant influence, presumed at 20% or more of the voting stock.
- debt basis: An S corporation shareholder's basis in loans they personally made to the corporation.