The retained earnings account is not a reservoir of cash for paying dividends to the stockholders.

Question

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Retained earnings refer to the accumulated profits of a company that are not distributed as dividends but are instead reinvested into the business. It is not an account containing cash that is readily available for paying dividends to stockholders. The decision to distribute dividends is made separately by the company's board of directors.

The Retained Earnings Account Is Not a Reservoir of Cash