Which of the following best describes retained earnings?

Retained earnings represent the portion of a company's profits that are not distributed to shareholders as dividends and are instead reinvested in the business or held for future use. This accumulation of profits reflects the company's ability to generate income over time while retaining funds to support its operations, growth, or debt reduction.

When a company makes a profit, it has the option to either pay out a portion of those profits to shareholders in the form of dividends or retain them for internal use. The retained earnings account shows the total amount of these un-distributed profits accumulated from prior years, significantly contributing to the overall equity of the company.

The other options describe different financial concepts. Cash reserves pertain to liquid assets available for immediate use, accrued liabilities refer to expenses that have been incurred but not yet paid, and revenues received in advance represent payments that have been collected before the service or sale is delivered. While all these elements are important in understanding a company's financial position, only the definition of retained earnings pertains specifically to profits that are kept within the business rather than distributed to the owners.