How is retained earnings defined?

Retained earnings represent the cumulative amount of net income that a company has retained in the business rather than distributed to shareholders as dividends. This figure indicates how much profit has been reinvested in the company to fund growth, pay down debt, or for other business purposes. Retained earnings are an important component of shareholder equity and are reflected in the equity section of the balance sheet.

The other options do not accurately capture the concept of retained earnings. Profits distributed to shareholders would refer to dividends rather than the retained amount. A summary of annual expenses is unrelated to retained earnings, as it focuses on costs rather than profits. Lastly, considering only profits from the last accounting year ignores the cumulative aspect that is fundamental to retained earnings, which includes all previous years' earnings retained in the business.