Which of the following is NOT a characteristic of retained earnings?

Retained earnings reflect the cumulative profits a company has earned over time, less any dividends that have been paid to shareholders. It is essentially the portion of net income that is retained for reinvestment in the business rather than distributed to shareholders. This amount is often used to finance growth opportunities or to cover unexpected costs.

The statement that it can be distributed as dividends is true because companies can choose to pay dividends to shareholders out of retained earnings, which are often viewed as a source of funds for such distributions. Additionally, retained earnings do represent cumulative profits and are indeed the total of all profits earned, subtracting any dividends that have already been distributed.

The notion that retained earnings is subject to taxation is where the distinction lies: retained earnings themselves are not directly subject to taxation. Instead, the income that contributes to retained earnings is taxed at the corporate level when it is earned before it is added to the retained earnings account. This means that while the profits have already been taxed when generated, the retained earnings account does not incur additional taxation simply because the profits are retained rather than distributed.