Which of the following best describes Retained Earnings?

Retained earnings represent the cumulative amount of net income that a company has retained, rather than distributed as dividends to shareholders. This account is considered a permanent account because it maintains its balance over time, reflecting the ongoing profitability of a company across accounting periods. Retained earnings increase with profits earned and decrease with losses incurred, ultimately resulting in a total that shows how much of the company's profits have been reinvested in the business to facilitate growth and expansion. Since this account is specifically designed to track a company’s accumulated earnings, choice A accurately encapsulates its essential role.

In contrast, temporary accounts are used for revenues and expenses for a specific period and reset at the beginning of each new period. They do not track the long-term financial performance like retained earnings. Moreover, retained earnings are not exclusive to cash transactions, nor are they solely focused on dividend payments; while dividends do affect this account – as they reduce retained earnings when paid out – the account itself also encompasses overall net income and losses. Therefore, choice A is the most suitable description of retained earnings.