The retained earnings account on the balance sheet does not represent cash and in fact, represents a claim against the existing assets of the firm. This implies that retained earnings are in fact the reinvested earnings of stockholders.

Question

Quizplus · Accepted Answer

Retained earnings represent the portion of net income that is not distributed as dividends and is instead reinvested in the business. It is a component of stockholders' equity, which means it represents the owners' claim on the assets of the company. Retained earnings are not cash, but rather a measure of the amount of earnings that have accumulated over time and have not been distributed to shareholders.

The Retained Earnings Account on the Balance Sheet Does Not