Question

Retained earnings is the amount of cash that has been generated by the firm through its operations but has not 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 total retained earnings of the firm. True False

Answer 1

Answer:

True

Explanation:

Retrained earnings are the amount of cash that has been retained by the company for its personal use and has not been paid out to its shareholders. So this total amount which includes cash and cash equivalent is equal to the retained earnings of the firm.

Answer 2

Answer:

False

Explanation:

Retained earnings are not always kept in cash, there is no practical reason for it. Usually the corporation will use retained earning to finance future investment projects (so they don't need to borrow money) that will allow them to grow or expand, so most retained earnings are investing in something else and not held as cash.