Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends.Retained earnings are kept in cash or near cash accounts and, thus, these cash accounts, when added together, will always be equal to the firm's total retained earnings.

Question

Quizplus · Accepted Answer

Retained earnings represent the cumulative amount of net income earned by a company that is retained by the company rather than distributed to shareholders as dividends. However, retained earnings are not necessarily held in cash or near-cash accounts. They can be reinvested in the business, such as in equipment, inventory, or other assets. The statement that these accounts will always equal the firm's total retained earnings is incorrect because retained earnings can be used for various purposes, not just held as cash.

Its Retained Earnings Is the Actual Cash That the Firm