What does a retained earnings statement summarize?

A retained earnings statement provides a summary of the amounts and causes of changes in retained earnings during a specific period of time. This financial statement starts with the beginning balance of retained earnings, adds any net income (or deducts any net loss) from the income statement, and then subtracts any dividends paid to shareholders. This process allows stakeholders to see how the company's retained earnings have grown or shrunk based on its financial performance and distribution of profits.

Understanding this statement is crucial because retained earnings reflect the cumulative profits that a company has reinvested in its operations, which can provide insight into its financial health and growth strategy. The retained earnings statement plays a vital role in showing how profits have been allocated over time, distinguishing it from other financial documents that might focus more broadly on revenues, expenses, or cash positions.