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Explain why the retained earnings are subtracted to arrive at the appropriate cash flow.  

Explain why the retained earnings are subtracted to arrive at the appropriate cash flow.  

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Answer #1

Retained Earnings are not directly considered in Cash flow statements.

Retained Earnings are a function of two different factors: 1. Net Income and 2. Dividends

While preparation of the Cash flow statement, first part goes into the cash flow from operating activities and second part goes into the cash flow from financing activities.

Net Cash flow is added into Operating activities cash flow because it is the direct increase in cash after paying the shareholders and Dividends are subtracted from financing activities cash flow as it is the cash that goes out.

Retained earnings are not directly added or subtracted as per your question.

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