The retained earnings statement reports the changes in the retained earnings for a period of time.
Retained earnings are used to improve the company through investment in research and development, investment in plant and equipment, paying off debt, and other programs.
It is prepared after the income statement because the net income or net loss for the period must be reported in this statement. Similarly, it is prepared before the balance sheet, since the amount of retained earnings at the end of period must be reported on the balance sheet. Because of this, the retained earnings statement is often viewed as the connecting link between the income statement and balance sheet.
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