Retained earnings on the balance sheet are the part of certain profits that remains with the organization after it has paid all mandatory payments.

Definition

Retained earnings on the balance sheet are the portion of certain profits that remains with the organization after it has paid all and other payment obligations.

To assess the company's performance, the most important indicator in the report is profit for a certain period of time.

Based on its positive or negative dynamics, one can understand how effectively the organization operated in a given period of time.

In order to increase productivity, and as a result, the growth of income received, it is necessary to correctly direct funds from retained earnings.

The allocation of these resources is influenced by the decisions of the firm's management. They will be jealous of where the retained earnings will be directed:

  • employee bonuses;
  • dividend payment;
  • increase in the amount of authorized capital;
  • increasing the reserve fund;
  • distribution of funds for other purposes aimed at the development of the organization.

Important:Retained earnings cannot be accumulated until the organization fulfills all monetary obligations for a certain period of time.

The concept of retained earnings closely intersects with the concept of net profit.

However, their difference is that retained earnings are primarily a performance indicator for a period of one calendar year or for the period from the start of the organization’s work to the present.

Net profit is needed to reconcile figures for the period.

It should be taken into account that retained earnings in the organization are interpreted differently.

The accountant evaluates such profit as the result of the final work for the year and reflects its indicator in the 84th account.

The profit itself is distributed by the owners of the organization in the person of its owners.

The economic meaning of retained earnings will be that its indicators will be considered the next year after the date of its actual calculation and distribution by the accountant, based on the decision of the enterprise management.

Formation process and content

Active-passive account 90 is responsible for sales. It actually reflects all the results of the company’s direct activities, expressed in:

  • production and sales of products;
  • provision of services.

The debit of the account will reflect the full amount of the cost of manufactured products, the amount calculated, as well as other expenses related to production.

The account credit will contain the full amount of proceeds from the sale of goods. The balance, as a final calculation, is transferred to account 99.

Based on these calculations, the following entry is made

The financial actions of the organization, expressed in activities that are not related to the main one, will be entered into account 91, which is responsible for other income of the company that differs from the main one.

These types of calculations will include:

  • selling the company's existing assets;
  • leasing of company assets;
  • conducting markdowns on assets that are outside the main circulation of funds;
  • carrying out additional valuation of assets that are outside the main turnover;
  • carrying out external actions with foreign currencies;
  • investing funds in other organizations;
  • carrying out liquidations of movable or immovable property;
  • transfer of movable or immovable property as a gift;

In the above cases, actions will be recorded in the following form:

Similarly, when working with the above accounts, balances are transferred to accounts responsible for unplanned receipts of income or such unplanned receipt of losses.

An example of such income or expense could be the receipt of an insurance payment for a specific event or the loss of any asset on the balance sheet of the enterprise as a result of a natural disaster or catastrophe.

In other words, such income and expenses are not predicted and are of a spontaneous (emergency) nature.

In the same way, the balance is transferred from the account responsible for materials.

For example, it records the price of any types of property or materials received by the organization that are not required for production.

Important:retained earnings can be increased according to the indicators in the reporting, in a situation where the accountant makes a mistake, expressed in an incorrectly inflated expense indicator.

The growth of retained earnings can also be affected by payments in the form of dividends if they are not used by investors within 3 years from the date of their accrual.

In addition to financial assets expressed in one form or another, profit can also be material.

It is important to understand this when you need to conduct an economic analysis of an organization’s performance for a selected specific period of time.

At the end of the year, the accountant needs to carry out an operation in the organization’s balance sheet related to writing off the final balance from the main account to account 84.

This action is formalized as follows

After this posting is completed, account 99 from which the funds were written off must be reset, and the first entries on it will appear only at the beginning of next year.

General points and differences from uncovered losses

Both retained earnings and uncovered losses are necessary for conducting and reconciling indicators on the efficiency of the organization.

There is no particular difference when drawing up accounting documents.

In some situations, the differences will be in the net amounts of profit that were paid to the owners of the enterprise or the amount of retained earnings as a whole for the period of time indicated in the financial statements.

Retained earnings, which is a liability on the balance sheet, actually increases the amount of capital in the organization.

This is a reflection of how effectively these funds were invested in the development of production facilities.

With a detailed analysis, it is possible to determine which of the factors became more suitable for obtaining such a profit.

The loss itself in the organization’s balance sheet is always displayed with a minus sign and is enclosed in parentheses.

When it occurs, management needs to conduct a thorough analysis to determine why such a deviation in the direction of profit occurred.

A common reason for such situations is a decrease in the competitiveness of the product on the market or the investment of large amounts of investment in production. Which take a long time to pay off.

How is it calculated

Important indicators that you should know when calculating retained earnings are:

  • the amount of retained earnings at the beginning of the year;
  • net profit or loss for the year;
  • amounts received by the owners.

According to the last point, these amounts can be in the form of dividend payments to the shareholders of the enterprise or payments of cash to the founders.

The indicators are taken from line 1370 responsible for the balance sheet and line 2400 responsible for the financial results report.

The interim payment, which is assigned during the year from the projected profit, must be reflected in the organization’s orders.

If a profit is made for the current year, then it will be calculated using the following formula

If there is only a loss for the current year, then the calculation formula will be slightly modified

The first value can also be negative if losses in the current year exceed the calculated amount of profit at the beginning of the year.

If this happens, then such an indicator will be designated as an uncovered loss.

The calculation formula can also be supplemented and modified depending on what form of ownership and type of activity the organization has.

Reflection in reports

This profit must be reflected in the company's capital or in its reserves.

When preparing annual reports, the total amount of profit will be reflected excluding pre-made deductions.

This means that the following were subtracted:

  • loss for the previous year;
  • payment on dividends;
  • transfers of funds from reserve funds;
  • and other items of expenses of the enterprise.

All numerical indicators for the above points may be modified until the management of the organization finally approves them.

Previous year report

  • accumulation calculation;
  • calculation by year.

In the first option, dividing profits into previous years and the reporting year with the further opening of a separate sub-account, which will relate to account 84, is not required.

Profit is recorded on an accrual basis from the moment the enterprise starts operating.

In the event that losses occur with this form of calculation, they will overlap with the profits that were received in previous years.

This type of calculation is only effective for small organizations.

The main difference between the calculation by year is the presence of a separate sub-account for keeping records of the amounts of profit received for different periods of time.

Subaccount options may vary. For example, such accounts might look like this:

In 2 situations presented in the example, the amounts that were received in previous years will be included in the calculations at the end of the year.

In order to obtain detailed information, you need to take the following types of indicators:

  • explanatory notes that can go along with the balance sheet of the enterprise;
  • accounting entry for account 84;
  • reports for previous years.

Attention:If errors are discovered in the calculations of profit or loss for the previous year, information about them will be included in the financial results for the current year.

Report for the current year

If you need to display the profit for the current year in the company’s accounting department, you can open additional accounts for account 84.

An example might look like this:

If a positive result is obtained in the current year, based on the example, the posting will look like this:

Dt 84.1 Kt 84.2

If the posting is applied to an 84.3 account, then this will mean that the profit will be used for various funds.

In any of the accounting options, the closing entry at the end of the reporting year will be noted in the general ledger.

This posting will be an operation to write off funds from account 99 to account 84.

From the amount used must already be deducted, as well as interim payment of dividends and other forms of payments.

Therefore, the following type of wiring is done

One of the characteristic features of a market economy is the competition of most enterprises among themselves.

When summing up the results of work, the most important financial indicator is profit. Its positive dynamics, along with other economic indicators, indicates the efficiency of the business entity.

Further development is influenced by the choice of ways to distribute profits, which remain in the hands of the owners of the enterprise.

Management decisions in this matter will determine the strategy and goals for at least the next year. Annual bonuses to employees, dividends, the size of the reserve fund - all this will depend on how profits are distributed after payment of all mandatory payments.

Retained (another name is accumulated) profit is the part of profit remaining at the disposal of the enterprise after paying taxes, dividends, fines and other obligatory payments.

This concept closely intersects with. If a company has no deferred tax liabilities and no dividends were accrued during the year, then these indicators in the annual reporting coincide. However, retained earnings represent the resulting indicator for the reporting year and for the entire period of the company’s existence, and net profit - only for the reporting period.

This term is interpreted differently in accounting and economic understanding. For an accountant, this is the final result of work, reflected in the reporting on account 84. But it has not yet actually been distributed, since the decision on where to send retained earnings is made by the owners (shareholders) in the period from March 1 to June 30 of the next year. Therefore, in an economic sense, they consider profits for the past year after this date, that is, when the accountant makes all deductions according to the decision of the owners of the enterprise.

How is it formed and what does it include?

A positive or negative result from the sale of products or the provision of services is reflected in the active-passive account 90 “Sales”. The debit of the account shows the full and other expenses. The loan reflects revenue. The final balance is transferred to account 99 “Profits and losses”.

Postings are carried out:

  • Dt90Kt99 – profit made;
  • Dt99Kt90 – loss received.

The operations of the enterprise, which are classified as operating and non-operating, are shown on account 91 “Other income and expenses”.

These include:

  1. Sale and rental of assets owned by the company;
  2. Depreciation and revaluation of non-current assets;
  3. Transactions with foreign currency;
  4. Investments in business shares of other companies;
  5. Liquidation and donation of property;
  6. Income and expenses from transactions with securities.

Postings are as follows:

  • Dt91Kt99 – profit made;
  • Dt99Kt91 – loss received.

This procedure for writing off the totals for accounts 90 and 91 is called balance sheet reformation. Many economists understand this term as the direct distribution of accumulated profit from account 84.

Similarly, the balance from accounts 76 “Extraordinary income and expenses” (for example, insurance compensation or losses from natural disasters) and 10 “Materials” (the cost of accepted inventory items that are unsuitable for production) is transferred to account 99.

Retained earnings increase when accounting errors are discovered that resulted in overstated expenses. And also in case of unclaimed dividends by shareholders, if more than three years have passed since they were accrued. Accordingly, errors that create an overstatement of income will reduce the accumulated profit.

They are not always cash in the form of cash or in a current account (depreciation of fixed assets increases profit, but does not add money). This must be taken into account when conducting economic analysis.

In the last days of the reporting year, the chief accountant conducts write-off of the final balance(profit or loss) from account 99 to account 84 “Retained earnings”.

Postings are made:

  • Dt99Kt84 – upon receipt of profit;
  • Dt84Kt99 – upon receipt of a loss.

After this, account 99 is reset to zero and no transactions are carried out on it until the beginning of the next year. Count 84 is active-passive. Before entering the total amount of accumulated profit into the financial statements, the amount of income tax is subtracted from it (later it can be adjusted).

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Retained earnings and uncovered losses: commonalities and differences

These terms are absolute indicators of the enterprise's performance. There are no significant differences in accounting, except for the difference in debit and credit entries. As a rule (although not always), the loss is covered by the remainder of the profits of previous years, a reserve fund, authorized or additional capital. Profit in the reporting year, by decision of the owners, is distributed in a number of areas.

Retained earnings, which is part of the liability side of the balance sheet, actually increases the equity capital of the business entity. This states the effectiveness of invested assets in production. A detailed analysis will show which factors were responsible for achieving profit.

In the Balance Sheet (Form No. 1), the amount of loss is reflected with a “-” sign and is taken in parentheses. If it is present, it is necessary to carefully analyze the reasons. This can be either a negative sales result and a drop in the competitiveness of products, or a temporary phenomenon with large investments in production that slowly pay off.

Calculation procedure and formula

For JSCs (joint stock companies) these are dividends to shareholders, and for LLCs (Limited Liability Companies) these are payments to the founders.

This data comes from lines 1370 and 2400. Interim payments during the year from future profits must be reflected in the order for the enterprise.

If this year profit made , That calculation formula will be the following:

NPoch.year = NPat the beginning of the year + Pnet. – Double, where
NPna beg. year - retained earnings at the beginning of the year,
Pchist. – net profit,
Double – dividends paid to shareholders.

If this year loss received , That formula will change a little:

NPoch.year = NPat the beginning of the year – Dec. – Double, where
Ub. – loss for the current year.

The value of NPotch.year may be negative if the loss for the current year is greater than the accumulated profit at the beginning of the year. Then this indicator will be called uncovered loss.

For enterprises of different forms of ownership, the formula may change, but the calculation principle is the same.

Display in financial statements

Retained earnings (or uncovered loss) are included in the capital and reserves of the enterprise and are displayed in the liability side of the balance sheet on line 1370. In annual accounting reports, the total amount is shown taking into account preliminary decisions based on the results of activities. That is, minus losses from previous years (if any), accrued dividends, contributions to the reserve fund and other expense items. These figures may change pending final approval from the company's owners.

Past reporting years

Possible two accounting methods accumulated profit:

  • cumulative,
  • weather

With the first method, the division of profit for the reporting year and previous years by opening separate sub-accounts to account 84 is not carried out. It accumulates on a cumulative basis from the beginning of the operation of the enterprise. If a loss occurs, it is automatically covered by the existing profit of previous years. This is typical for small businesses.

The annual accounting method is distinguished by the presence of separate sub-accounts for synthetic accounting of accumulated profits in different periods.

Options for second-order accounts can be different, for example:

  • account 84.1 – Retained earnings of the reporting year;
  • account 84.3 – Retained earnings from previous years.

In both cases, the amount received in previous years is included in the calculation of the results for the reporting year.

To obtain detailed information you need data from the following sources:

  • explanatory note - can be attached to the balance sheet (except for small enterprises);
  • accounting entries for account 84;
  • reporting of previous years.

If errors are detected in the calculation of profit or loss for previous years, they will be taken into account in the financial result for the reporting year.

This year

To reflect profit for the current year in accounting, the company can open sub-accounts to count 84, for example:

  • 84.1 – Profit received;
  • 84.2 – Retained earnings;
  • 84.3 – Profit used.

The positive result obtained for the current year will be reflected by posting Dt84.1Kt84.2. Postings involving account 84.3 mean using profits for various purposes.

For any accounting options, the last entry for the reporting year in the General Ledger will be a write-off from account 99 to account 84. Interim dividends or payments (if any) have already been pre-calculated from this amount of accumulated profit.

The following transactions are made:

  • Dt99Kt68 – tax calculation,
  • Dt84Kt75 (or Kt70) - calculation of dividends (account 70 - bonuses for employees).

Uncovered loss

To reflect the current year's loss there may be subaccount 84.4 opened – Received loss. If it is not covered by the profits of past years, the owners of the enterprise decide to pay it off from other sources or leave it on the balance sheet. In this case, it is considered uncovered and the negative value is carried to line 1370.

With the annual accounting method, information about uncovered losses for the current year and previous years posted to subaccounts to account 84:

  • 84.2 – Uncovered loss of the current year;
  • 84.4 – Uncovered loss from previous years.

Check procedure

Information on movements of retained earnings (uncovered losses) throughout the year is reflected in the Statement of Changes in Capital (Form No. 3).

Some small businesses and non-profit organizations may not include this report in their annual reporting. It contains data for 3 years, including the reporting year.

What is negative retained earnings?

This is synonymous with the “uncovered loss” result. Some economists use this term when the loss did not arise due to negative performance results.

If errors of large amounts are discovered in cost calculations, losses can occur even for very profitable companies.

Directions for spending

After the balance sheet reformation, the chief accountant distributes the accumulated profit according to the decision of the owners of the enterprise. He has no right to do this on his own.

Compared to other articles, it can be disposed of more freely, but within the framework of the company’s charter and the law Typical wiring for various areas of spending profits will be as follows:

  1. Dt84Kt84 – covering losses from past years. Also, this posting in the context of individual subaccounts of account 84 (for example, 84.2/84.3) can display investment in production through the acquisition of non-current assets;
  2. Dt84Kt82 – contributions to the reserve fund (creation or replenishment);
  3. Dt84Kt75 (80) – increase in the authorized capital (for an LLC on a loan account 75, and for a JSC – account 80);
  4. Dt84Kt83 – increase in additional capital.

It is not allowed to distribute profits if there is a debt on investment in the authorized capital (debit to account 75) of at least one of the owners. The same rule applies if the net assets of the enterprise are less (or will become less after the planned distribution of profits) of its authorized capital and reserve fund, as well as in the case. The same restrictions apply to the payment of dividends on shares.

For an LLC, the creation of a reserve fund is not necessary, but for a JSC its size must be specified in the charter (minimum 5% of the authorized capital). Enterprises in the LLC form can create various funds for spending profits (development, bonuses for employees, social sphere, charity). To reflect them in accounting, it is possible to open any subaccounts to the necessary accounts.

For JSCs, the law provides for the possibility of creating a fund to corporatize the company's employees. Cash from it is spent only on the purchase of securities from shareholders. In the future, employees of the company can buy out free shares.

Direction of retained earnings into production(both in assets and liabilities), in essence, is open self-financing. This is also called reinvestment or hoarding.

The peculiarity of investing profits in the development of production is that the acquisition of property does not reduce the liabilities of the balance sheet. At the same time, the asset increases. In fact, the profit will be spent, but this will not reduce the amount of equity capital. The amounts of funds spent will be reflected in the subaccount of account 84. When the amount of accumulated profit ends (the balance of account 84 becomes a debit), then it will become clear that further investments in production are made with the help of working capital.

Sources of loss coverage

The resulting loss shows a decrease in the amount of equity capital in the liabilities side of the balance sheet. Since the other articles of section 3 remained unchanged, loss can be written off in various ways.

Postings by sources of loss coverage:

  • Dt82Kt84 – coverage from the reserve fund;
  • Dt84Kt84 – coverage from the accumulated profit of previous years (posting in the context of individual subaccounts);
  • Dt83Kt84 – repayment at the expense of additional capital;
  • Dt80Kt84 – reduction of the authorized capital (it is equal to the amount of net assets) by the amount of the loss;
  • Dt75Kt84 – repayment of losses at the expense of the owners.

All participants in economic relations are interested in obtaining the enterprise’s profit and increasing it. It is the main source of net income for society, increasing the standard of living of the population.

What retained earnings are is described in the following video lesson:

Retained earnings are the balance of net income for previous years. In this article, we will take a closer look at what retained earnings (uncovered loss) is, how it is formed, how it is reflected in the balance sheet, what problems arise when using it and how the CFO can solve them.

In the concept of retained earnings, the word “retained” confuses many people. Let's figure it out. Further, for easier understanding of the material, by profit we will understand precisely retained earnings.

What is retained earnings and how is it formed?

Retained earnings are the balance of net profit for the previous reporting years of the company's activities. Retained earnings, as its own source of financing, can grow annually and ensure business development. From the point of view of balance sheet items, this means that the annual increase in equity capital is accompanied by a movement between balance sheet asset items. To distribute profits, a decision of the general meeting of participants is required (see also about corporate income tax ).

Download and use it:

Accounting policy The document regulates the rules for reflecting the company’s income and expenses, long-term and current assets, advances from buyers, loans, as well as taxes payable

The procedure for accounting for profits and losses in management reporting If you need to consolidate the classification of income and expenses, as well as the rules and procedures for accounting in management accounting, this document can be used as a sample.

Retained earnings on the balance sheet

Net profit during and at the end of the reporting period is reflected in balance sheet account 99.

Retained earnings over the years of operation of the enterprise are accumulated in the credit of active-passive account 84 “Retained earnings”, and uncovered losses are accumulated in the debit. A negative value of this section in the balance sheet can indicate both the first years of the enterprise’s existence and a long-term loss.

Accounting for retained earnings

In the balance sheet, line 1370 “Retained earnings (uncovered loss)” is used for accounting purposes. It would be correct to request analytics for account 84, which is synthetic and it is recommended to open subaccounts for analytical purposes:

  • 84.1 – profit subject to distribution – the amount of profit that business owners decided to distribute;
  • 84.2 – loss to be covered;
  • 84.3 – retained earnings in circulation – the amount of profit that it was decided to leave in circulation;
  • 84.4 – profit used – the amount of profit that was distributed to expand the activities of the enterprise.

Accounting entries

Information on accounting entries by area of ​​profit use is summarized in Table 1.

Table 1. Main directions of using net profit

Direction of use of retained earnings

Direct wiring

Impact on retained earnings and equity

Formation of reserve capital

Formation of additional capital

Decrease, but movement within equity

Repayment of losses from previous years

Movement within retained earnings

Increase the authorized capital

Decrease, but movement within equity

Dividend payment

Decrease in retained earnings and equity

Investments

Movement within retained earnings

If you do not conduct analytics on account 84, then the information will be anonymized in the same way as in the balance sheet line and by changes in the initial balances of the components of equity capital we will see only the formation of reserve, additional and authorized capital (if they were formed specifically this year). But it will not be possible to fix the distribution of profit on everything that does not change the balance of account 84 - covering losses, investments, and by default it can be considered that the profit was indeed not distributed. In addition, many are really sure that if profit is distributed, then it should leave the balance sheet, forgetting that without this there will be no increase in assets.

Problems and use of retained earnings

Most misunderstandings and disputes are related to the areas of use of profits, although they are generally accepted and should be specified in the charter. But very often, when we defended a business plan, an annual report and touched upon the topic of distribution of sources of financing, one could hear: “the company has not distributed all its profits,” “if all the profits were distributed, why did they remain on the balance sheet?” and so on.

Why is this happening? The main reason is that there is no single document that would regulate all disputes on this issue. Russian legislation does not contain special provisions that regulate the distribution of profits, and one must be guided by the general norms of the law. At the same time, the laws themselves on joint stock companies and limited liability companies do not say how to reflect the distribution of retained earnings in accounting. Accounting regulations contain information on how to calculate profit, but how to spend it is only mentioned in the chart of accounts without specifics. The tax inspectorate and a regular audit do not control whether the amount of retained earnings is correctly determined. This can be confirmed based on the results of the annual inventory and an individual order during an audit.

What intensifies the debate is that each of its participants looks only from the point of view of their subject specialization: an accountant - from the point of view of the presence of entries in the chart of accounts, a lawyer - from the position of consistency with legislation, a financial manager - taking into account the economic nature of the sources and the need for financing.

Distribution of profit on investments

There is an opinion that there is no need to distribute profits on investments. In some fairly respected sources you can read the categorical “... profits should be spent only on dividends; real money, not profits, is still spent on acquiring assets.” Two basic concepts are substituted here: source of financing and cash flow. Cash flow is necessary in order to pay dividends. If, when planning our activities, we assumed a certain level of net profit, and it was received, then it will be recorded in revenue through the price of the company’s products / work / service and, with proper management of working capital, will be provided with cash flow (an exception will be for operations that are not accompanied by cash flow ).

Regarding investments, the following should be noted. If the volume of investment is such that the planned depreciation is sufficient to cover the needs and pay for these expenses by including it in the price of the product/service/work, then the profit on the investment will not be distributed precisely because of the lack of economic need and the profit remains undistributed.

Let's say the size of the investment program is much larger than the total source of depreciation. Then it makes economic sense to distribute profits to finance investments. It is absolutely logical that in this case, as a source, everything remains on the balance sheet of the enterprise, since a new asset is created and the company is capitalized.

Example

Let's look at an example. Business transaction: we purchased a fixed asset (hereinafter referred to as fixed assets) worth 118 thousand rubles. VAT included

table 2. Postings for the acquisition of fixed assets

the name of the operation

Direct wiring

Amount, thousand rubles

The emergence of an obligation to pay for fixed assets

Reflection of input VAT

OS put into operation

Payment to the supplier for the OS

VAT is accepted for deduction

Using net profit to purchase operating systems

If loans are used to purchase fixed assets, then the question does not arise why, after payment and entry of the object, the balance of account 66 does not decrease. Absolutely the same thing happens when the source of financing investments becomes the profit of previous years: the credit balance on account 84 remains unchanged. With one difference, the profit remains on the company’s balance sheet, but the loan goes away after it is repaid. Such profit is accumulated in subaccount 84.4 - used profit.

Let's say we plan to simply increase sales without purchasing additional fixed assets or making long-term capital investments, but we need to increase current assets. This is also an enterprise development strategy. Can we use the profits for this? In this case, the profit must be left undistributed, but the cash flow that accompanies it works for the development of the enterprise.

If you adhere to the logic of subaccounts to account 84, then the profit that you decided not to temporarily distribute is reflected in subaccount 84.3. The decision on its distribution can be made at any time, and not just at the end of the year. To do this, it is necessary to hold a special thematic meeting and approve the decision. Until this decision is made, the profit is in circulation. It can be involved in the operating cycle of the enterprise in the form of cash flow with the aim of subsequently increasing sales volumes. If successful, additional net profit may be generated. It can be placed on deposit or VAT as free funds and also generate additional profit, or it can temporarily close the need for operating credit and loans and allow you to save on interest. But it is important to understand that in this case we are not talking about profit as a source of financing, but about free cash flow, which, with a certain high level of solvency, corresponds to it. The profit itself remains undistributed until the decision of the owners and shareholders.

Is it possible to distribute profits to pay off the loan?

Now there is a point of view that profits can be distributed to repay the loan. This reasoning is also based on the substitution of the concepts of source of financing and cash flow. The fee for using credit resources is the interest rate for the period of validity of the agreement; For the use of profit as a source of enterprise development, the payment is dividends to the founders, but the mechanism for their formation is different. My opinion is that there is no economic sense in replacing the nature of the source of financing, and in order to guarantee the release of cash flow, it is possible to temporarily not distribute profits for other purposes, i.e. leave it in the same way as in the example with an increase in current assets in subaccount 84.3 - retained earnings in circulation. In fact, for a financier, this is a benchmark amount for maintaining solvency. If a decision is made to direct this profit to dividends or long-term investments, he must be ready to withdraw this amount from circulation or redistribute it without threatening the solvency and liquidity of the enterprise.

Audit of retained earnings

In order to avoid the distribution of already distributed profits and in the future not to face a sudden loss of solvency, it is very important to conduct a high-quality audit of it when taking inventory of retained earnings on the balance sheet.

As follows from the very definition of retained earnings, the audit must be carried out in two directions. First, check the formation of retained earnings itself, which corresponds to the audit of net profit for each year. Then comes the verification of the correctness of the founders’ decision in terms of compliance with legislative restrictions regarding dividends for LLCs and JSCs and the formation of reserve capital for JSCs. And after confirming this, the compliance of the amounts of distributed profit and intended use with the decisions made, as well as the deadlines for their implementation, is inspected. The latter concerns not only dividends, but also the formation of the authorized capital of the subsidiary. The roles of accounting, corporate and financial departments are different, but the goal is the same - the correct distribution and management of such a source of financing as profit.

For an accountant, the decision of the founders is the primary document according to which he carries out business operations to distribute profit in accounting. It is important for the financial manager to confirm the economic feasibility of the source and the availability of its cash flow. The Corporate Department confirms that there are no legal restrictions on such distribution and documents the decisions.

Separately, I would like to cancel the importance of restoring the distribution of profits, which may be required based on the results of the audit. If corporate documents on the distribution of profits have not been drawn up, and the economic meaning of the distribution is confirmed when analyzing the activities of the enterprise, then it is necessary to formalize all decisions, and bring the analytics of 84 accounts into line in order to make correct decisions on sources of financing in the future.

  • Purpose of the article: reflection of information about the undistributed financial result of the current year and previous years.
  • Line in the balance sheet: 1370.
  • Account numbers included in the line: account balance 84 (debit or credit).

At the end of the year, at the general meeting of the company’s shareholders or founders of the organization, a decision is made on the distribution of the company’s net profit. The part of the financial result that was not distributed among the participants is recognized as retained earnings of the current year. If the financial result is negative, information appears about the company's uncovered loss.

In the company's accounting, retained earnings or uncovered losses are recorded in account 84. It separately displays the undistributed financial results of the current year and previous periods for different subaccounts.

Note from the author! Account 84 is active-passive, so there can be a debit balance (the amount of the outstanding loss) and a credit balance (the amount of retained earnings), depending on the company's performance.

Line 1370 of the balance sheet belongs to the section Capital and reserves of the passive part of the balance sheet: the company’s own capital in terms of retained earnings is reflected here. Information for all years is summarized and displayed in one line. This line also records information about losses of the current year and previous periods that were not covered by relevant sources of financing.

Line 1370 - part of net profit not spent on the needs of the organization.

Note from the author! Net profit in accounting is understood as the final positive financial result of a company’s activities, which remains after the repayment of all obligations in terms of payment of mandatory taxes, fees, and insurance contributions to the budget.

According to the accounting rules, the financial result of the enterprise is displayed in Kt99. At the end of the year, a balance sheet reformation procedure is carried out (closing all main accounting accounts). One of the results of this procedure is the transfer of the balance from Kt99 to Dt84 in terms of undistributed income for this period.

Retained earnings can be spent on the following needs:

  • payment of dividends to shareholders or founders of the company;
  • increasing the size of the company's authorized capital (after official registration of changes in the constituent documentation);
  • creation of reserves: transfer of part of retained earnings to the company's reserve capital;
  • repayment of losses from previous years.

Note! During the year, there can be no movement on Dt84 without the decision of the company’s founders.

Uncovered loss

Losses as a result of the organization’s activities may arise in the following cases:

  • the company’s costs exceed the income received both from its main activities and from operations not related to its main financial and economic activities;
  • significant errors from previous reporting periods were identified;
  • adjustments have been made to the company's accounting policies.

Line 1370 of the balance sheet is a reflection of losses that were not covered by possible sources of financing. Data for previous periods and the current year are summarized.

Sources of loss coverage:

  • funds of the authorized capital: bringing the size of the authorized capital to the net assets of the company. The reduction of the authorized capital must be carried out within the limits established by law (the minimum threshold for public joint-stock companies is 100 thousand rubles, for non-public joint-stock companies and LLCs - 10 thousand.

    Retained earnings - where can it be used and who makes the decision?

  • funds from the company's reserve fund;
  • targeted investment by the founders of the organization (contributions from the owners of the company that do not affect the distribution of shares and the amount of the authorized capital);
  • retained earnings from previous years.

Regulatory regulation

The use of account 84 to generate information about the presence of the company’s undistributed profit at the end of the year (the occurrence of an uncovered loss) is carried out in accordance with the Chart of Accounts and other regulatory documents.

Practical examples of accounting for retained earnings (uncovered loss)

Example 1

In 2017, revenue from the sale of goods of Solnyshko LLC amounted to 2 million rubles (excluding VAT). The cost of goods that were sold amounted to 1 million rubles (purchase from suppliers, transportation, etc.). Other costs of the company - 70 thousand rubles.

Business transactions

930 thousand rubles is the net profit of the LLC.

From the final financial result of the company, income tax was paid to the budget.

186 thousand rubles - settlements with the Federal Tax Service of Russia.

After carrying out the balance sheet reformation procedure, the following posting was made

744 thousand rubles - the retained profit of the company is displayed.

In the balance sheet of Solnyshko LLC at the end of 2017, line 1370 will contain the amount of 744 thousand rubles.

Example 2

As a result of the analysis of the financial and economic activities of the YAR company, a loss was identified based on the results of activities in 2017. The loss as of January 1, 2018 amounted to 40 thousand rubles. The founders of the company decided to cover the loss through their own targeted financing.

Business transactions

15 thousand rubles - cash contribution by the founders.

25 thousand rubles - transfer of funds by the founders to the company's current account.

40 thousand rubles - the loss is covered by targeted contributions from the founders.

Common entries for retained earnings (uncovered loss)

  1. Balance reform procedure

    Dt99 Kt84 - retained earnings.

    Dt84 Kt99 - identification of uncovered losses.

  2. Write-off of loss

    Dt84 Kt84 - at the expense of income from previous periods.

    Dt82 Kt84 - by means of the authorized capital.

    Dt75 Kt84 - targeted financing of the founders.

    Dt80 Kt84 - bringing the authorized capital to the value of net assets.

Questions and answers on the topic

No questions have been asked about the material yet, you have the opportunity to be the first to do so

Line 1370 “Retained earnings (uncovered loss)”

By line 1370 The amount of retained earnings or uncovered loss of the organization is reflected:

Interim reporting:

plus/minus

minus

(in terms of interim dividends accrued in the reporting period)

Annual reporting:

The amount of retained profit (uncovered loss) of the reporting period is equal to the amount of net profit (net loss) of the reporting period, i.e. profit (loss) after tax. Therefore, if the organization does not have retained earnings (uncovered loss) from previous years and the distribution of interim dividends during the reporting period, then the value of line 1370 coincides with the value of line 2400 “Net profit (loss) of the reporting period” of Form No. 2.

In a number of cases, an organization is obliged to make adjustments to balance sheet indicators during the inter-reporting period as of January 1 of the reporting year:

1. Retained earnings (uncovered loss) include the results of revaluation of intangible assets if:

  • the amount of depreciation of intangible assets exceeds the amount of its revaluation credited to the organization’s additional capital as a result of the revaluation carried out in previous reporting years;
  • intangible assets that were not previously undervalued are discounted;
  • intangible assets, which were previously discounted, are revalued and the amount of its writedown carried out in previous reporting years is charged to retained earnings (uncovered loss) in previous reporting years.

2. The amount of retained earnings (uncovered loss) is adjusted when the estimated values ​​of intangible assets (i.e., the residual value of intangible assets) change:

  • in case of clarification of the useful life of intangible assets;
  • in case of clarification of the method of calculating depreciation for intangible assets.

Retained earnings (uncovered loss)

Retained earnings (uncovered loss) include the results of revaluation of fixed assets if:

  • an asset that was previously discounted is revalued and the amount of its depreciation carried out in previous reporting periods is charged to retained earnings (uncovered loss) in previous reporting years;
  • the amount of depreciation of an asset exceeds the amount of its revaluation credited to the organization’s additional capital as a result of the revaluation carried out in previous reporting years;
  • OS, which was not previously undervalued, is discounted.

4. The amount of retained earnings (uncovered loss) is adjusted when accounting policies change:

  • caused by changes in the legislation of the Russian Federation or regulatory acts on accounting (except for cases when otherwise provided by the relevant legislative or regulatory act);
  • in other cases, changes in accounting policies.

No adjustment is made to retained earnings if the monetary consequences of a change in accounting policy for periods prior to the reporting period cannot be estimated reliably.

5. Retained earnings (uncovered loss) include the results of recalculation of deferred tax assets and liabilities caused by changes in income tax rates in accordance with the legislation of the Russian Federation.

Remaining - retained earnings

Page 1

The balance of retained earnings is carried forward to the next year.

There may be a balance of retained earnings, which before its distribution is used in the turnover of the enterprise. If the company is unprofitable, then equity capital is reduced by the amount of losses received. A significant share in the composition of internal SOURCES is occupied by depreciation charges from used own fixed assets and intangible assets. They do not increase the amount of equity capital, but are a means of reinvesting it. Other forms of equity capital include income from the rental of property, settlements with founders, etc. They do not play a significant role in the formation of the enterprise’s equity capital.

Retained earnings from previous years shows the balance of retained earnings from previous reporting years.

The item Retained earnings from previous years records the balance of retained earnings from previous reporting periods.

The concept of retained earnings of an enterprise

Under the article: Retained earnings of previous years, the balance of retained earnings of previous years is given.

Line 460 Retained earnings from previous years shows the balance of retained earnings from previous reporting years.

Retained earnings from previous years (88 - 2) reflects the amount of the balance of retained earnings from previous reporting years.

As the results of the calculations show, the value of the bank's own funds during the analyzed period decreased by 2,071,894 rubles, which was mainly caused by a decrease in the balance of the bank's retained earnings by more than half.

When filling out the line, the data from account 88 Retained earnings (uncovered loss), subaccount 88 - 2 Retained earnings (uncovered loss) of previous years is used, the balance of retained earnings of previous reporting years is shown.

Let’s assume that the general meeting of shareholders at the end of the year decided: 30% of the company’s net profit remaining after paying taxes and the formation of funds (according to the law and the charter) should be reinvested, 20% of the net profit should be used to pay dividends on ordinary voting shares, 50% of the net profit profits to be left as the balance of retained earnings.

The main source of replenishment of equity capital is the profit of the enterprise, through which accumulation, consumption and reserve funds are created. There may be a balance of retained earnings, which, before its distribution, is used in the turnover of the enterprise, as well as the issue of additional shares.

One of the most important subsections of the balance sheet, which analysts primarily pay attention to. According to regulatory documents in the balance sheet, the financial result of the reporting period is reflected as retained earnings (uncovered loss) of the current reporting period, minus taxes due from profits established in accordance with the legislation of the Russian Federation and other similar mandatory payments, including sanctions for non-compliance with tax rules. The enterprise must reflect in the balance sheet retained earnings (uncovered loss) of the reporting period, accumulated as a total from the beginning of the year. After the distribution of profits at the end of the year by decision of the meeting of the owners of the organization, the balance of retained profits is added to the retained profits of previous years. In case of a loss, the data on the indicated balance lines are given with a minus.

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Elen
Added: #2   Sat Feb 20, 2010 23:06:47
The headline of the message:
1. In the chart of accounts there are two profit (loss) accounts
5510 Retained earnings uncovered loss of the reporting year
5520 Retained earnings uncovered loss of previous years

Profit for the reporting year is collected on account 5510 (it is also calculated in the income statement)

2. In January, the profit of the reporting year is transferred to the profits of previous years
Dt 5510 Kt 5520 (If we are talking about profits, not losses)

In this way, the profits of previous years are accumulated.

3. Profit accumulates if it is not distributed among the founders (shareholders). This distribution is dividends. This distribution reduces accumulated earnings.

Retained earnings in the balance sheet (nuances)

All movements with profit - the formation of distribution is reflected in the statement of changes in equity

the profit and loss report calculates the financial result of the reporting year

Yes, on an accrual basis, minus dividends paid.

Added after 1 minute 44 seconds:

So are you asking about the balance sheet, or about the profit and loss statement?

I agree, without an example the theory is not perceived.

For simplicity, an example where profits were not distributed

Today is December 31, 2009. The company has accumulated profit from previous years on account 5520 (i.e. without 2009 profit) 100,000 tenge (Credit balance, since profit)

On the income and expense accounts in the balance sheet (a very simplified version) we have:
1 Credit balance on account 6010 (Income from sales) 500,000 tenge
2 Debit balance on account 7010 (cost of goods sold) 300,000 tenge
3 Debit balance on account 7210 (Administrative expenses) 50,000 tenge

We prepare a profit and loss statement for 2009 (also a simplified version, without other income, expenses, income tax)


Gross income 200,000 tenge
Total income 150,000 tenge Remember this figure
In accounting, we close income and expense accounts
Dt 5610 Kt 7010 300 000
Dt 5610 Kt 7210 50 000

Account 5610 has a credit balance of 150,000 tenge. Making the wiring

Last years (Credit balance 5520) 100,000
Reporting year (credit balance 5510) 150,000
Total (total accumulated profit for previous years + profit for 2009) 250,000

You are right. Of course, you understand that income tax is calculated not from accounting profit, but from taxable profit (and they are extremely rarely equal). Therefore, we believe that the tax will be 30,000, and we did not calculate this tax in the financial statements 😀

Profit and loss report for 2009 already taking into account tax

Income from sales 500,000 tenge
Cost of products sold (300,000) tenge
Gross income 200,000 tenge
Administrative expenses (50,000) tenge
Profit before tax 150,000 tenge
CIT expenses (30,000)
Total income120,000

CIT expenses are reflected in accounting (again for simplicity)

Dt 7710 Kt 3110 30 000

Closing income and expenses:

Dt 6010 Kt 5610 (Total income) 500,000
Dt 5610 Kt 7010 300 000
Dt 5610 Kt 7210 50 000
Dt 5610 Kt 7710 30,000

Account 5610 balance 120,000

We make a transaction for this amount

Dt 5610 Kt 5510 120 000

In the balance sheet as of 01/01/2010 we see

Profit of previous years (Credit balance 5520) 100,000
Reporting year (credit balance 5510) 120,000
Total (total accumulated profit for previous years + profit for 2009) 220,000

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Retained earnings (loss) of the reporting year is an important indicator indicating the productivity of the company. Undistributed is considered to be the part of the profit that remains in the hands of the company after making payments and has not yet been directed either to the development of capacities or to the payment of dividends. Distribution of profits is the prerogative of the owners of the company, and this occurs on the basis of the minutes of the shareholders’ meeting, where the corresponding decision is recorded. Let's learn how to account for retained earnings (RE).

Retained earnings: formula

There is an opinion that retained earnings are net profits. This is true if the company did not pay dividends in the reporting year and has no deferred tax liabilities. The differences between undistributed (NP) and net profit (NP) are only in scope: NP is the result of the enterprise’s work for the entire period of the company’s existence and the reporting year, NP is the result of the company’s activities in the current period. Often it is net profit that acts as undistributed profit.

When calculating the amount of retained earnings (uncovered loss), they operate with the values ​​of its availability at the beginning of the year, the emergency (or loss) for the year and the amounts of dividends paid to the owners. For JSC, these are payments to shareholders, for LLCs, to the founders.

Depending on the final result of the company’s activities, the calculation formula changes slightly:

  • With the profit received, it is as follows - NP k = NP n + PE - D, where NP k and NP n are the values ​​of NP at the beginning and end of the period, D are payments to owners;
  • If there is a loss - NP k = NP n - U - D, where U is the loss.

Retained earnings: account

To combine information about the actual presence and dynamics of the amounts of retained earnings or uncovered losses, there is an account of the same name 84.

The NP calculation mechanism is activated at the end of the year, when the balance sheet is reformed, i.e. closing productive accounts 90 and 91 at the end of the financial year when preparing reports. Closing account 90, the accountant transfers the balance to account 99 “Profits and losses”, drawing the results from the sale of manufactured products or services provided:

  • D/t 90 – K/t 99 – profit made;
  • D/t 99 – K/t 90 – loss allowed.

Transactions related to non-operating are reflected in the account of other costs and income - 91. At the end of the year, the accountant closes the 91st account, transferring the balance to the 99th:

  • D/t 91 – K/t 99 – for the amount of calculated profit;
  • D/t 99 – K/t 91 – for the amount of the incurred loss.

Balances on other accounts are also transferred to the 99th account, forming the results of work for the year. Subsequently, the accountant writes off the final balance of the 99th account to the 84th, reflecting the entries:

  • D/t 99 – K/t 84 – if profit is made;
  • D/t 84 – K/t 99 – if a loss is made.

To fix the amount of profit for the current period, an enterprise can create subaccounts to the account. 84. For example, take into account the profit in the current period on the account. 84/1, NP reflected on the account. 84/2, and the use of profit - on the account. 84/3. The profit of the reporting year inside the account will be reflected by the entry D/t 84/1 - K/t 84/2, and postings using the account. 84/3 – record the distribution of profits for various purposes.

After accounts 90, 91, 99 are closed, completely reset to zero, they will begin to be used again only next year. Before reflecting the amount of NP in the reporting, it is reduced by the amount of income tax (D/t 99 – K/t 68).

Accounting and use of retained earnings

Reflection of the value of the NP on the loan account. 84, the amount of accumulated profit at the end of the reporting period is determined. Its use is documented by the minutes of the owners’ meeting, and it can be used for various needs. For example:

Operation

Payment of income to company owners after approval of annual financial statements

Staff bonuses

Part of retained earnings is allocated:

To increase the size of the authorized capital

80 (for JSC)

75 (for LLC)

To replenish reserve capital

For the increase in additional capital

To repay established losses from previous periods

For investment

Analytical accounting by account. 84 is usually organized in such a way as to inform the user as much as possible about the areas of use of funds. Guided by the convenience of reflecting the use of profits, funds already aimed at ensuring the development of the company or acquiring assets and those not yet used are grouped separately.

Uncovered loss

To record losses incurred in the reporting year, a separate subaccount – 84/4 – can be created. If its value is not covered by the profits of previous periods, then the founders of the company make a decision to repay it from other sources, or leave it on the balance sheet. In this case, it becomes uncovered and is entered with a negative value in line 1370 of the balance sheet.

Sources for covering losses are various funds and reserves. Postings can be like this:

Analysis of retained earnings: what is evidenced by an increase or decrease in the indicator

When analyzing an NP, it is necessary to evaluate the change in its share in the amount of equity capital. A decrease in retained earnings indicates a decrease in the company's business activity. However, before drawing such conclusions, it is necessary to examine the structure of equity capital and take into account the fact that the size of the PE in many aspects is determined by the adopted accounting policy of the company. In addition, a decrease in NP is often preceded by the identification of errors that led to an overstatement of income, and, accordingly, a decrease in NP.

But if retained earnings have increased, this indicates:

  • Accumulation of NP (but if it is not put into circulation by investing in projects or stimulating the same investors, then the company’s income may soon decrease due to a decrease in the competitiveness of manufactured goods, wear and tear of equipment, loss of attractiveness, etc.);
  • Identifying errors in reporting that resulted in inflated costs;
  • The presence of unclaimed dividends, from the date of accrual of which more than 3 years have passed.

The most acceptable for investors is a company that invests the funds remaining after paying dividends in its own development.