Accounting


Accounting Forum

AccountingCoach.com is the world's largest free online accounting course.


Not signed in (Sign In)

Categories

Vanilla 1.1.7 is a product of Lussumo. More Information: Documentation, Community Support.

Welcome Guest!
Want to take part in these discussions? If you have an account, sign in now.
If you don't have an account, apply for one now.

General Accounting Discussions: Retained Earnings used as cash??

Bottom of Page

1 to 4 of 4

  1.  
  1.  
    Thanks for your help!!

    If a company has $800,000 of retained earnings- would the company be able to pay cash to buy an asses with a cost of $200,000?
    • CommentAuthorCounter
    • CommentTimeJul 10th 2007
     
    Not necessarily. Retained earnings is the corporation's cumulative earnings minus the dividends it has declared since the corporation began. Those earnings may have been in cash near the time they were earned, but since then the cash may have been invested in equipment and inventory and/or was used to reduce a bank loan or to pay some accounts payable.

    If you want to know whether a corporation has sufficient cash to purchase an asset, you need to look at the corporation's Cash account which is one of its asset accounts. You cannot tell the amount of cash from the retained earnings account, which is part of stockholders' equity.
    • CommentAuthorchris
    • CommentTimeJul 24th 2007
     
    Well, retained earnings is nothing but ploughing back of profits for business activity and in longterm solvency interests of the business.Therefore, the company can certainly acquire assets from such amounts (though not necessarily in cash).
    It is advisable from Income Tax point of view that the company makes any payments above Rs.20,000 only by way of cheque or other form except cash failing which such expenses may not be admissible upto 20%.
    Thus, it is in the genuine interest of the firm not to make payment for the asset by cash.

    Well, please do correct me if anything is wrong!!...
  4.  
    I am agree with the chriss!
    You have done a good job!

1 to 4 of 4

  1.  



 

Why AccountingCoach.com?

the accounting coach

AccountingCoach.com is designed to help people without an accounting background easily understand accounting concepts at no cost.


By investing thousands of hours, we have created clear and concise accounting information for both business people and students of all ages.


We understand how difficult accounting can be. That's why we have ensured that each accounting topic includes a clear explanation, reinforcing drills, Q&A, puzzles, dictionary of terms, etc.


Read 1,440 Visitor Testimonials



What's on AccountingCoach.com?