The statement of retained earnings is also known as the statement of owner’s equity and is one of four financial statements. The other three financial statements are the income statement, balance sheet, and cash flow statement. The statement of retained earnings shows any changes made in retained earnings. Retained earnings are the part of net income that is not distributed as dividends, but retained by the company. Retained earnings are shown on the balance sheet as part of the shareholder’s equity section.

Retained earnings are usually influenced by dividends and income. This means that the statement of retained earnings uses information from the income statement to provide information for the balance sheet. The information provided on the statement of retained earnings follows a simple equation: Ending retained earnings is equal to beginning retained earnings plus investments minus withdrawals plus income.

The statement of retained earnings also reconciles the beginning and ending retained earnings for the given period.