Which statement regarding retained earnings is true?

Question

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Retained earnings represent the cumulative earnings of a company that have not been paid out as dividends to shareholders. However, just because a company has a large amount of retained earnings on its balance sheet does not necessarily mean that it has a lot of cash available. The retained earnings account on the balance sheet represents the total amount of retained earnings that have been accumulated over time and may include assets other than cash. Therefore, a company may need to borrow cash to make required payments even if it has a large amount of retained earnings. Option A is incorrect because depreciation is a non-cash accounting item that reduces net income but does not affect retained earnings directly. Option C is incorrect because the retained earnings account does not represent cash that is available for paying dividends. The company must have sufficient cash and other liquid assets to pay dividends. Option D is incorrect because a loss on the income statement will reduce retained earnings but does not necessarily mean that the account will be negative.

Which Statement Regarding Retained Earnings Is True