Should Retained earnings and cash position mimc each other?

Why doesn’t the retained earnings of the purchasing company (i.e. the buying company) decrease along with the cash during a buyout of the Target Company? And what are the differences between the retained earnings and cash position of a company?

I am not sure but retained earnings are the NI of the year not distributed to shareholders and cash position is current assets holding for current liabilities. Retained earnings is a part of Equity and Cash is a part of Assets. God knows what I have written here…I am high today.

Retained Earnings and Cash are completely different accounts. For one thing, RE is the sum total of all earnings and losses experienced by the company and is affected greatly by the accounting choices made along the way (i.e. revenue recognition, management estimates of dep’n rates, expense or capitalizations… and of course, that pesky accounting concept called the matching principle), but Cash shows the balance of all Cash sitting in the firm’s accounts on the date of the financial statements. It includes payments made to the company, which weren’t recognized and excludes payments not made but included in the expenses of the company. In short, the only time that these two accounts are theorized to ever equate is upon the final day of operations for the business; after each sale is completed, each expense paid for, each liability extinguished and each asset sold off. At this point, the only 2 items on the B/S that will have non-zero values will be Cash and RE.

A=L+E When a firm buys another one they are trading one asset (cash) for another (investment in the subsidiary). So the A side of the equation stays the same. Therefore the L+E side doesn’t budge. Retained earnings is an equity account which won’t change. Hope this helps.

Also, your post assumes the unstated assumption that earnings are in the form of cash. However, they could easily be gains from marked to market values of trading securities, etc. which would have no impact on your current cash position. Retained earnings are simply income not distributed to shareholders. Frequently, that money is almost immediately reinvested either into WC or capitalized assets, neither of which would show up on that periods income statement but would prevent any real correlation between RE and cash position. Not to mention that the existance of noncash charges would deteriorate any correlation between an accounting number like RE and the cash account.