Which financial statement reports if the earnings are distributed as dividends or retained in the business?

The Statement of Stockholders Equity is the financial statement that provides a detailed account of changes in equity from transactions with shareholders and reflects how earnings are allocated. This statement summarizes the transactions affecting equity over a specific period and includes information on retained earnings and dividends declared.

Retained earnings represent the cumulative profits that have been reinvested in the business rather than distributed to shareholders as dividends. Therefore, this statement illustrates the distribution of earnings between dividends paid out and cumulative earnings retained for future growth, making it the primary source for understanding shareholder equity changes related to earnings management.

The other financial statements do not provide this specific breakdown. The Balance Sheet reflects the company's financial position at a point in time but does not detail how earnings have been allocated. The Income Statement reports revenues, expenses, and net income but does not show how that income is treated in terms of dividends or retained earnings. Finally, the Statement of Cash Flows focuses on cash inflows and outflows rather than the distribution of profits and would not explicitly indicate earnings retention or distribution as dividends.