Where are "Retained earnings" kept

[bullboy8]

Just out of curiosity, where is this money kept? In a bank account? if yes, shouldn't it show up as cash then under assets?

Thanks

 

[scose-no-doubt]

Retained earnings are book gains.

 

[Rhody Trader]

Retained earnings are basically profits not paid out to the owners (shareholders). As such, they fall under "owner's equity".

 

[scose-no-doubt]

What he's asking is where the cash from these profits is held

 

[bullboy8]

that is right scose- no-dount, I think I've figured out the answer. THe cash is actually held across the assets. The difference between asset and liabilities= equity. It can therefore in in any asset form.

THanks

 

[scose-no-doubt]

The new IFRS type accounts consist of
Income Statement (P&L)
Statement of Financial Position (Balance Sheet)
Statement of Changes in Equity (SOCE)
The SOCE is essentially the bridge between the first two and shows exactly what the equity available to shareholders (inc RE) is made up of.

As you say the retained earning should really be held as a cash asset but as the accounts become more complex I'm sure there would be all sorts of brought forward dividends proposed, accrued and payable that would basically strip the cash straight out of the bank. Also as you say there is re-investment that would push the RE into the longer term assets so you see RE is not strictly held across the assets. You also have to consider things like revaluations etc which can be transferred into RE.
It's all a bit of a nightmare to be honest. I don't think us accountants get kudos we deserve sometimes

I have some books from my old ACCA exams I'm trying to get rid of if you are interested in this stuff. You pay postage and they're yours. They're just gathering dust and taking up space but it would be a shame to bin them.

 

[bullboy8]

Thanks for your kind offer Scose. Although I'll love to explore and understand accounting more, I'm not sure if I have the time. I work full time as a paraplanner and have an interest in investing, hence my accounting questions. I've been looking into Haynes plc today -I seems quite happy to go ahead with it-going to buy on the next regular trade day.

I did accounting in my first year, but didn't go in to that much depth. Another quick question. There are 2 classes of shares in Haynes Plc. A & ordinary. I just found out from another forum that only the ordinary shares are listed on the LSE. I was so confused at first as my own valuation pointed to the company being some £20m undervalued vs it's market cap. I was wondering if you knew where in the future I can look out for which class is listed. I've been through the whole 09 report and 10 interim and they don't specifically say so.

 

[Rhody Trader]

THe cash is actually held across the assets. The difference between asset and liabilities= equity. It can therefore in in any asset form.

The better way to say it is that the "profit" (not the "cash") is held across assets because, as scose noted, not all gains and losses are on a cash basis. For example, you could have a mark-to-market gain on bond holdings which produce a paper profit, or depreciation of equipment which produces a non-cash expense.

But to the wider point, you are correct. Owners equity is basically the net of assets - liabilities and changes in retained earnings are reflected there.