Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.
$\begin{array}{lll}
\text { Cash } & \$ 50,000 \text { Accounts payable } & \$ 100,000 \
\text { Inventory } & 200,000 \text { Accruals } & 100,000\
\text {Accounts receivable } & \text { 250,000 Total CL } & \$ 200,000\
\text { Total CA } & \$ 500,000 \text { Debt } & 200,000 \
\text { Net fixed assets } & \$ 900,000 \text { Common stock } & 200,000\
\ &\ \text { ----------Retained earnings } & 800,000\
\text { Total assets} & \$1,400,000 \text { Total L \& E } & \$1,400,000\
\end{array}$

Question

Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.
 $\begin{array}{lll}
\text { Cash } & \$ 50,000 \text { Accounts payable } & \$ 100,000 \
\text { Inventory } & 200,000 \text { Accruals } & 100,000\
\text {Accounts receivable } & \text { 250,000 Total CL } & \$ 200,000\
\text { Total CA } & \$ 500,000 \text { Debt } & 200,000 \
\text { Net fixed assets } & \$ 900,000 \text { Common stock } & 200,000\
\ &\ \text { ----------Retained earnings } & 800,000\
\text { Total assets} & \$1,400,000 \text { Total L \& E } & \$1,400,000\
\end{array}$

Quizplus · Accepted Answer

Retained earnings are not cash; they represent the cumulative profits retained in the business and are not necessarily available as liquid cash to purchase assets.

Consider the Balance Sheet of Wilkes Industries as Shown Below