If a Roth IRA was funded with post-tax money and is cashed out, shouldn't we just have to pay tax on the interest earned and not the cash value of the account?

Yes, if a Roth IRA was funded with post-tax money, then the contributions can be withdrawn tax-free at any time. Earnings (interest, gains) are taxable and may be subject to a 10% penalty if withdrawn before you are 59½ and before the account has been open for 5 years.

Here are some helpful links:

• Roth IRA Withdrawal Rules - TurboTax
• Roth IRA Withdrawal Rules - Charles Schwab