Those retained earnings (RE)- i.e., retained profits– of an entity puts set aside (appropriates/ by appropriation) for a specific use or purpose. In other words, an entity reporting retained earnings decides (through its board of directors) the venues of use, whether funding the acquisition of fixed assets, increases in working capital, or simply paying out dividends to its shareholders. Appropriated retained earnings are, therefore, not available for uses other than those initially identified, as their intended use has already been decided- i.e., these funds have been earmarked for specific purposes. For example, retained earnings that have been appropriated for extension or growth purposes cannot be used, anymore, for dividends payout.

However, and nevertheless that the board of directors technically has the power to assign part of retained earnings for a specific purpose, this appropriation is an internal restriction on a portion of retained earnings. So for example, in the case of bankruptcy or similar events, appropriated retained earnings are not legally restricted: creditors and shareholders would still have full access to the earmarked funds.