What the item represents
Retained earnings is an item recorded in the net assets section of the balance sheet. It represents the cumulative total of internally retained earnings — the accumulation of net income over time, minus amounts distributed externally, such as dividends.
Points to watch when reading it
The balance of retained earnings increases or decreases depending on each period's net income and dividend payments. Looking at the proportion of retained earnings within total net assets can serve as a reference for gauging the degree to which past earning power has accumulated.