Retained earnings (uncovered loss) in the balance sheet. What is retained earnings in the balance sheet

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

When summing up the results of the work, the most important financial indicator is profit. Its positive dynamics, along with others economic indicators testifies to 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 employees, dividends, size and reserve fund - all this will depend on how the profit is distributed after payment of all mandatory payments.

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

This concept closely intersects with. If the company has no deferred tax liabilities and no accrual of dividends was carried out during the year, then these figures in the annual statements are the same. but retained earnings represents the resulting figure for the reporting year and for the entire period of the company's existence, and net profit- totally agree reporting period.

This term in accounting and economic understanding is interpreted in different ways. For an accountant, this is the final result of the work reflected in the statements on account 84. But it has not actually been distributed yet, 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 the economic sense, they consider the profit for the past year after this date, that is, when the accountant makes all the deductions according to the decision of the owners of the enterprise.

How it is formed and what is included in it

A positive or negative result from the sale of products, the provision of services is reflected in the active-passive account 90 "Sales". The debit of the account shows the full, and other costs. Loan reflects revenue. The final balance is transferred to account 99 “Profit and Loss”.

Postings are carried out:

• Dt90Kt99 - profit received;
• Dt99Kt90 - a loss has been received.

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 lease of assets belonging to the enterprise;
2. Markdown and revaluation outside current assets;
3. Operations with foreign currency;
4. Investments in business shares of other companies;
5. Liquidation and donation of property;
6. Income and expenses from operations with securities.

postings are as follows:

• Dt91Kt99 - profit received;
• Dt99Kt91 - a loss has been 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 is transferred to account 99 " 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).

Retained earnings increase when errors are found in financial statements which led to higher costs. And also in case of unclaimed dividends by shareholders, if more than three years have passed since their accrual. Accordingly, errors that created overestimation of income will reduce the accumulated profit.

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

In the last days of the reporting year Chief Accountant holds writing off the closing balance(profit or loss) from account 99 to account 84 "Retained earnings".

Wiring is done:

• Dt99Kt84 - when making a profit;
• Dt84Kt99 - upon receipt of a loss.

After that, account 99 is reset to zero and no operations are carried out on it until the beginning of the next year. Account 84 is active-passive. Before entering the total amount of accumulated profit in the reporting, the amount of income tax is deducted from it (subsequently it can be adjusted).

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Retained earnings and uncovered loss: common and differences

These terms are absolute indicators of the efficiency of the enterprise. 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 balance of profits of previous years, the reserve fund, authorized or additional capital. Profit in the reporting year, according to the decision of the owners, is distributed in a number of areas.

Retained earnings, which is part of the balance sheet liabilities, actually increases the equity capital of an economic entity. This states the effectiveness of the assets invested in production. A detailed analysis will show, due to which factors it was possible to achieve profit.

In the balance sheet (form No. 1), the amount of loss is reflected with a “-” sign and is taken in parentheses. If so, the causes must be carefully analyzed. This can be either a negative result of sales and a drop in the competitiveness of products, or a temporary phenomenon with large investments in production, which slowly pay off.

Procedure and calculation formula

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

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

If this year profit received , then calculation formula will be the following:

NR for the year = NR for the beginning of the year + Pchist. – Double out, where
NP at the beginning year - retained earnings at the beginning of the year,
Pchist. - net income
double - dividends paid to shareholders.

If this year received a loss , then formula will change a bit:

NP for the year = NP for the beginning of the year - Dec. – Double, where
Ub. - loss for the current year.

The value of NPch.year can 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 businesses different forms property, the formula may change, but the principle of calculation is the same.

Display in financial statements

Undistributed profit (or uncovered loss) is included in the capital and reserves of the enterprise and is displayed in the liabilities side of the balance sheet in line 1370. In annual accounting reports, the total amount is already shown taking into account preliminary decisions based on the results of activities. That is, minus the losses of previous years (if any), accrued dividends, deductions to the reserve fund and other items of expenditure. Until the final approval of the owners of the company, these figures may change.

Past reporting years

Possible two ways of accounting accumulated profit:

• accumulative,
• 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 performed. It accumulates on an accrual basis from the beginning of the operation of the enterprise. If there is a loss, it is automatically covered by the existing profit of previous years. This is typical for small businesses.

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

Variants of accounts of the second order may be different, for example:

• account 84.1 - Retained earnings of the reporting year;
• account 84.3 - Retained earnings of past years.

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

For detailed information you need data from the following sources:

• explanatory note - may be attached to the balance sheet (except for small enterprises);
• accounting entries on account 84;
• reports from previous years.

If errors are found 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 the profit for the current year in the accounting department, the company can open sub-accounts to account 84, for example:

• 84.1 - Earned profit;
• 84.2 - Retained earnings;
• 84.3 - Used profit.

The received positive result of the current year will be reflected in the posting Dt84.1Kt84.2. Postings involving account 84.3 mean the use of profits for various purposes.

With any accounting options, the last posting 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) - accrual of dividends (on account 70 - bonuses to employees).

Uncovered loss

To reflect the loss of the current year, it can be sub-account 84.4 opened - Received loss. If it is not covered by the profit of the 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 transferred to line 1370.

With the annual method of accounting, information on uncovered loss for the current year and past years posted to sub-accounts to account 84:

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

Checking procedure

Movement information is distributed profit(uncovered loss) throughout the year are reflected in the Statement of changes in equity (Form No. 3).

Some small businesses and non-profit organizations v annual reporting this report may not be included. It contains data for 3 years, including the reporting one.

What is negative retained earnings

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

When errors are found in large sums in costing, losses can occur even for highly profitable companies.

Spending directions

After the reformation of the balance sheet, 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 on various directions of spending profits will be as follows:

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

It is not allowed to distribute profit if there is a debt on investment in the authorized capital (debit on account 75) from at least one of the owners. The same rule applies if the value of the net assets of the enterprise is less (or will become less after the planned distribution of profits) of its authorized capital and reserve fund, as well as in the case of. 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 (at least 5% of the authorized capital). Enterprises of 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 sub-accounts to the necessary accounts.

For JSCs, the law provides for the possibility of creating a fund for corporatization of the company's employees. The money from it is spent only on the purchase valuable papers at the shareholders. In the future, employees of the enterprise can redeem free shares.

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

A feature of investing profits in the development of production is that the acquisition of property does not reduce the liability of the balance sheet. In this case, the asset increases. In fact, the profit will be spent, but the size equity it won't reduce. The amount of funds spent will be reflected in the sub-account of account 84. When the amount of accumulated profit ends (the balance of account 84 becomes debit), then it will become clear that further investments in production are made using 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 remain unchanged, allowed to write off the loss in various ways.

Transactions by sources of loss coverage:

• Dt82Kt84 - coverage at the expense of the reserve fund;
• Dt84Kt84 - coverage at the expense of the accumulated profit of previous years (posting in the context of individual sub-accounts);
• Dt83Kt84 - repayment at the expense of additional capital;
• Dt80Kt84 - a decrease in the authorized capital (it is equated to the amount of net assets) by the amount of the loss;
• Dt75Kt84 - repayment of the loss at the expense of the owners.

All participants are interested in making a profit of the enterprise and its increase economic relations. It is the main source of net income for society, raising the standard of living of the population.

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

Instruction

The calculation of retained earnings is very simple, just substitute the values ​​​​in one of the formulas below and know the amount of net profit / loss of the company.

After collecting all the data for calculations, substitute the values ​​​​into the following formula:
RE1 = RE0 + Net Income - Dividends,

where RE1/RE0 - retained earnings at the end/beginning of this period;

Net Income - net profit;

Dividends - dividends paid to shareholders.

If the company in the current period received not a net profit, but, on the contrary, a net loss, then the calculation is carried out according to the following formula:
RE1 = RE0 - Net Loss - Dividends,

where, as it has already become clear, Net Loss is a net loss.

note

When the net loss for a given period of time is greater than the retained earnings for the same period, the amount of retained earnings may turn out to be negative, creating a deficit.

Useful advice

Often, many firms use the net profit of their enterprise as an investment tool to generate additional income. Such areas may include the purchase of innovative equipment, the implementation of investment projects, and even the conduct of scientific research.

You should always adjust the retained earnings account when the income and expense account changes by adding a new entry.

The English term Retention Ratio (or Retained Surplus) also refers to retained earnings, but is known as the "profit retention ratio".

Only the owners of the firm make decisions through general meeting shareholders or participants on the distribution of profits.

Sources:

• Account 84 "Retained earnings (uncovered loss)"

V commercial organization the main purpose of the activity is to make a profit. Therefore, owners are always interested in the value of the “retained earnings” indicator. This is the money that the company can divide between the founders or leave on the accounts of the organization for the purposes of its further development.

Instruction

Typically, in the early years of a company's existence, retained profit, formed at the end of the year, is sent to the reserve fund for further investment, payment of bonuses or acquisition of property.

If the organization is in general plan accounts, which means that you have access to accounting data for Last year. By the way, from January 1, 2013, the obligation to maintain accounting records will be assigned to all companies, including those applying a simplified taxation system or paying single tax on imputed income. So, the amount of retained earnings (that is, profit after paying tax on profit), is reflected in account 84. If the company had a loss, its value is reflected in the debit, while a positive result is in the credit.

If during the year the organization carried out a revaluation of fixed assets (with the impact of such actions on the amount of additional capital), paid interim dividends or changed the authorized capital, then these changes should affect the final value of retained earnings. They must be added or subtracted, depending on whether it was profitable or expenditure transaction.

Please note that the value of line 1370 of the balance sheet must match line 2400 of the income statement. This rule works if no distribution of dividends was made during the year, which are reflected in the debit of account 84.

Please note that the distribution of profit for the year refers to the category of events that occurred after the reporting date. Therefore, in the reporting period for which the company distributes profit no accounting entries are made. Thus, the data on account 84 in the reporting year cannot contain information on the distribution of dividends at the end of this year, while they must reflect operations on the decision to use the profit received at the end of the previous year.

Related videos

Many dream of opening their own business, starting it, but suddenly they are faced with the fact that they need much more money than they thought ... Someone takes loans, someone decides that business is not for him. How to correctly calculate the cost of your business?

Instruction

First, you need to calculate the cost of it before you have taken at least one step to create it, and not after. Secondly, it is worth remembering that almost any business requires costs, "business without investments" is often just a myth, and it is necessary to soberly assess your financial opportunities.

Registration of an LLC (we will consider it because it is more expensive) will cost about 4,000 rubles if you register an LLC yourself, and 8,000-10,000 thousand if you hire an intermediary company (this option is most convenient). These amounts include the state fee for registration, notary services, bank accounts, production and fees for intermediaries, if you decide to use them. It is worth remembering that the dimensions state fees may change, and they need to be checked (for example, on the website of the 46th tax inspectorate - www.nalog.ru).

Registration requires that at least 50% of yours be paid. Now the minimum authorized capital of an LLC is 10,000 rubles, it can be contributed both in cash and in property. Please note that amendments are being prepared in Civil Code, which suggest an increase of at least 50 times since 2012. This is being done as part of the fight against one-day firms, but it can hit hard on simple entrepreneur.

At the first stage, you may not need a business premises. It is not uncommon for aspiring entrepreneurs to communicate with their first clients by phone, make appointments in cafes or offices of the same clients, and work on orders at home. However, this cannot continue for long, most likely. It is important not only the convenience of doing business, it is also important that when registering an LLC, you will need to name the address of the office. The "mass" addresses of tax inspectorates include Lately extremely wary. Therefore, it is worth deciding on a place and renting a small room.

You also need to take care of your business - the purchase of equipment, the organization of communications. At first, it is enough to have everything to a minimum, but do you plan to develop? The same applies to employees: if for the first few months you can work together with a partner, then later you will need people, at least a secretary.

Naturally, this calculation is only approximate. It all depends on the city in which you do business, the circumstances in the market. In addition, it is worth emphasizing that this calculation is suitable when you start to promote your business, i.e. not from the very beginning, because at first you may be working without employees and even without an office.

Sources:

• Small business website.

The indicator for any enterprise is the most important. Net is the result of the company's activities for a certain period. It shows the amount Money received by the enterprise by paying all tax fees, salaries to their employees and other payments that are mandatory.

The formula for calculating net profit is as follows:
Net profit = financial profit + gross profit + other operating profit - taxes.

After you calculate the necessary indicators, you can determine the amount of net profit. If you received a value with a “-” sign, then, accordingly, the enterprise suffered losses during the study period.

The resulting net profit is usually used by the enterprise at the discretion of management. As a rule, net profit goes to pay operating expenses. Sometimes the net profit is accumulated or used for charitable purposes.

Related videos

Instruction

Determine the amount of gross income - the total proceeds from the sale of goods or services. Find the amount of net income - the total proceeds from the sale of goods or services minus the cost of returned goods (services) and discounts provided to customers. Calculate the total costs of manufacturing goods and providing services included in the cost of production. Find the enterprise measure, which is the difference between net sales revenue and the cost of goods sold or services provided. Gross profit formula as the difference between net income and production cost.

Determine the net income. To do this, taxes, fines, penalties, interest on loans, as well as operating expenses should be deducted from gross profit. The latter include the costs of finding partners, concluding transactions, employee costs, costs due to force majeure situations. The net profit indicator just reflects the final result of the company's activities, shows how profitable the implementation of this type of activity is. Net profit is used by entrepreneurs to increase working capital, form various funds and reserves, as well as for reinvestment in . The volume of net profit directly depends on the size of gross profit, as well as on the value tax payments. If the company is a joint-stock company, dividends to shareholders of the company are calculated based on the amount of net profit.

Among the main functions of profit, stimulating can be distinguished. She main source cash injections, and the firm benefits from maximizing it. This will also have a positive effect on growth. wages enterprises, and at the pace of updating fixed assets, introducing the latest technologies. The result is an increase in production. The level of profit is important not only directly for the company, but also for the industry, the state. Thanks to the profits of firms, budgets of different levels are formed. It pays taxes that come from the budget. At market relations profit has an evaluation function. Its level affects the value of the company and its competitiveness in the industry. There is also a control function of profit. Lack of profit means the company is unprofitable. As you can see, it is very important to focus on the size of profit, which means that you just need to know its formula for analysis. economic activity.

In addition to the general indicator of profit, there are several types of it. For example, according to the sources of formation, there is a profit from sales (the cost of production must be deducted from the proceeds), from operations with securities (positive between income and expenses from operations for the sale of securities), non-operating (the amount of profit from the sale of goods, the sale of property and results of non-sales operations), from investment and financial activities. To find profit from investment activity, you need from the amount of net cash flow for investment project subtract the cost of implementing the investment. Profit from financing activities - the sum of profits from the sale, interest receivable and income from participation in other companies less interest payable and operating expenses.

According to the method of calculation, which is practiced at a particular enterprise, it is possible to distinguish marginal, net and gross profits. To find marginal profit, you need to subtract variable costs from income. Depending on how taxes are paid, there are taxable and non-taxable profits. Taxable income is income minus receipts from which payments to the budget are not deducted. To calculate it, you need to deduct tax from the balance sheet income, income from additional tax liabilities and income oriented to benefits operations. V economic analysis use such indicators as profit of the past, reporting, planning period, nominal and real profit. Nominal profit is called the profit, which is worth in financial reporting and corresponds book profit. Real profit is the nominal profit, adjusted for inflation, correlated with the index consumer prices. Also, financiers use the concepts of capitalized (aimed at increasing equity) and retained earnings, which is the final financial result minus taxes and other liabilities.

Not only external factors can affect the level of profit. The enterprise must apply measures for its growth. For example, you can optimize inventory and stock balances, analyze the range of manufactured products, identify products for which there is no demand, and remove them from . A more efficient management system also contributes to higher profits. Other measures are automation of production to reduce labor costs and the use of waste-free production.

Accounting profit- is positive financial results, according to the accounting records of the enterprise/organization. It is calculated on the basis of all business transactions for the reporting period and includes an assessment of the state of the balance sheet items. Profit is one of the most important indicators activities of the enterprise and one of the main sources of self-financing.

V economic theory the term "net retained earnings" in the balance sheet refers to the total amount of the organization's cash that remains after paying all taxes. Further in the article we will consider this concept in more detail.

Functions and values ​​of income in the work of the organization

Retained earnings are completely transferred to the disposal of the owner. At the same time, its importance is a fundamental factor in the life of any organization. The income of the owner is formed from the profit received. It is logical that the larger its value, the easier it is to attract third-party investments to the organization. Retained earnings remaining on the balance sheet of the enterprise after all payments become the organization's own capital. It is one of the key factors showing the efficiency of work for the reporting period. In the annual balance sheet of the company, this is reflected in the posting of the movement of funds between 99 and 84 accounts.

Distribution of income in the organization

In the future, only the owners of the organization (shareholders) have the right to dispose of the profit and loss of the enterprise. They meet at certain predetermined dates and make key decisions on the development and operation of the enterprise. At the same time, a secretary is appointed, whose duties include keeping the minutes of the meeting, where its results are recorded. Subsequently, the document drawn up and signed by the meeting participants is transferred to the chief accountant. He reflects in his papers data on the distribution of profits. In this case, the accountant checks the correctness of the income dispersal procedure in accordance with the procedure prescribed in the charter of the organization. In practice, it often happens that the head and chief accountant do not take into account the charter. This eventually leads to severe fines.

Reflection of income

Retained earnings, more precisely, its financial value, is reflected in account 84. With it, you can at any time clarify the amount at the disposal of the enterprise. You can also see all the movement that happened to her. At the end of the reporting year (December) there is a write-off net income in credit of account 84 ("retained earnings (uncovered loss)"), in correspondence with account 99 ("profit and loss"). Similarly, the amount of net loss is written off.

The movement of funds on the accounts of the organization

A part of the profit directed to the payment of dividends to shareholders is reflected in the financial statements as a debit of 84 accounts and a credit of 75, 70 accounts ("Settlements with the founders", "Settlements with personnel for wages"). The payment of intermediate interest is processed in exactly the same way. The loss in the balance sheet is most often reflected in the credit of account 84 in correspondence with the following accounts: 80 ("Authorized capital") - when the authorized capital is transferred to net assets organizations; 82 ("Reserve capital") - in the process of paying off the loss at the expense of reserve funds; 75 ("Settlements with the founders") - repayment of the loss at the expense of the participants of the organization. Tracking and analytics of the movement of income is carried out in a certain way. This provides visual information about their use. In some cases, accounting for retained earnings, you can find the division of funds already used (for example, aimed at developing the organization through the acquisition of additional basic income) and still remaining on the balance sheet of the enterprise.

Reformation

It is on the 84th account that the procedure familiar to every domestic accountant is well reflected - the reformation of the balance sheet. The process itself is considered a relic economic development THE USSR. It consists in providing the owner for approval and distribution of balance sheet profit for the reporting period. The process of distribution of this income implied a reformation, which was reflected in accounting documentation closing the income and loss account. Modern economy companies follow this procedure in a different way. Profit, or rather, its part, spent during the period of validity of the reporting period, is written off immediately at the time of its use.

In this case, the remaining part of the proceeds remains under the reformation, which the owners use. disadvantage this approach To accounting is that the balance no longer shows the total profit (loss), that is, the visibility overall result activities for the reporting period. At the same time, at the beginning and end of the established time period, there are discrepancies in the balance of the income statement. This, however, is not an indicator of incorrect accounting in the enterprise. V modern conditions the economic orientations of the owners of the organization have changed. The liquidity indicator comes first, that is, now any owner considers his organization solely in terms of profitability in the reporting period.

Features of the Reformation

This process within the framework of the existing chart of accounts is carried out as follows. The accountant on account 99 ("Profit and Loss") displays, depending on the profitability or unprofitability of the organization, the final balance. It must be transferred to account 84. At the same time, this posting must be total for the reporting period in the general ledger. Reformation of the balance sheet, according to the established and approved generally accepted practice, is carried out only in the year following the reporting period, after the redistribution of retained earnings by the meeting of shareholders. At the same time, the accountant begins to carry out this activity by writing off amounts according to the instructions of the owner from account 84.

Write off expenses on the new chart of accounts

According to the old chart of accounts, part of the expenses incurred by the organization at its own expense (purchase of vouchers to health camps for the children of employees, types of one-time financial assistance and other payments) were written off to the debit of account 84. As a result, at the end of the reporting year, the organization's profit was overestimated by the amount expense accounted for in account 84. This led to a distortion of the real financial situation at the enterprise. At the same time, the rights of the owners were violated, since part of the profit was distributed without their consent. With the introduction of the new payment of accounts, the problem was eliminated. Now all expenses of the organization are written off in two ways: by inclusion in the value of the organization's assets or by writing off to account 80 ("Profit and Loss").

Organization reserve fund

In cases where retained earnings remain on the balance sheet of the enterprise, the accountant is required to reflect this. Income is presented in the form of a credit balance on account 84. At the same time, retained earnings of previous years may remain and accumulate over several reporting periods. These funds are transferred to the reserve fund of the organization. Retained earnings that form it can later be used as a source of loss coverage. They may arise in a future reporting period. Retained earnings can also be used to increase the authorized capital of the organization.

Retained earnings are the remainder of net income for previous years. In the 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 a financial director can solve them.

In the concept of retained earnings, many are confused by the word "retained". Let's figure it out. Further, for easier perception of the material, we will understand the retained earnings as profit.

What is retained earnings and how is it formed

Retained earnings is 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 is accompanied by a movement between balance sheet asset items. For the distribution of profits, a decision of the general meeting of participants is required (see also about corporate income tax ).

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

The procedure for accounting for profit and loss in management reporting If it is necessary to fix 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 the balance sheet account 99.

Retained earnings over the years of the enterprise's activity are accumulated on the credit of the active-passive account 84 "Retained earnings", and uncovered loss - on the debit. The negative value of this section in the balance sheet can speak of both the first years of the enterprise's existence and a long-term loss.

Accounting for retained earnings

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

• 84.1 - profit to be distributed - the amount of profit that the business owners decide to distribute;
• 84.2 - loss to be covered;
• 84.3 - retained earnings in circulation - the amount of profit that it is 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 about accounting entries by areas of profit use and summarized in Table 1.

Table 1. The main directions of use of net profit

If you do not conduct analytics on account 84, then the information will be depersonalized in the same way as in the balance line and on changes initial balances components of equity capital, we will see only the formation of reserve, additional and authorized capital (if they were formed specifically this year), . But fixing the distribution of profits to everything that does not change the balance of 84 accounts - covering losses, investments - will not work, and by default it can be considered that the profit was really not distributed. In addition, many people are really sure that if the 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 use of profits, although they are generally accepted, they should be indicated in the charter. But very often, when we defended the business plan, the annual report and touched upon the topic of the distribution of funding sources, one could hear: “the enterprise has not distributed all the profits of the enterprise”, “if all the profits were distributed, why did it remain in the balance sheet?” etc.

Why is this happening? The main reason is that there is no single document which would regulate all disputes on this issue. Russian legislation does not contain special provisions that regulate the distribution of profits, and should be guided by the general norms of laws. At the same time, the laws themselves joint stock companies and Limited Liability Companies do not talk about how to reflect the distribution of retained earnings in accounting. V regulations according to accounting, there is information on how to calculate profit, but there is only a mention in the chart of accounts without specifics about how to spend it. Tax office, ordinary auditing they do not control whether the amount of retained earnings is correctly determined. It can not be confirmed based on the results of the annual inventory and an individual order during an audit.

The disputes are strengthened by the fact 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 the law, a financial manager - taking into account the economic nature of the sources and the need for financing.

Distribution of return on investment

There is an opinion that it is not necessary to distribute profits for investments. In some fairly respected sources, one can read the categorical “... to spend profits only on dividends, “live” money, and not profit, is still spent on the acquisition of assets. Two basic concepts are substituted here: the source of financing and cash flow. Cash flow is necessary in order to pay dividends. If, when planning activities, we included a certain level of net profit, and it is received, then it is included in the proceeds through the price of the product / work / service of the enterprise and, with proper management of working capital, it will be provided cash flow(an exception will be for transactions that are not accompanied by cash flow).

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

Suppose 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 quite 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. Asset acquisition transactions

If loans are involved in the acquisition of fixed assets, then the question does not arise why, after payment and entering the object, the account balance 66 does not decrease. Absolutely the same thing happens when the profit of previous years becomes the source of investment financing: the credit balance on account 84 remains unchanged. With one difference, that the profit remains on the balance sheet of the enterprise, and the loan after its repayment goes away. Such profit is accumulated on sub-account 84.4 - profit used.

Suppose we plan to simply increase sales without acquiring additional fixed assets and without making long-term capital investment, and we need to increase current assets. This is also a development strategy for the enterprise. Can we direct the profit to this? In this case, the profit should be left undistributed, but the cash flow that accompanies it works for the development of the enterprise.

If we follow the logic of sub-accounts to account 84, then the profit that we decided not to temporarily distribute is reflected in sub-account 84.3. The decision on its distribution can be made at any time, and not only at the end of the year. To do this, it is necessary to hold a special thematic meeting and approve the decision. As long as there is no such decision, the profit is in circulation. It can be involved in the form of cash flow in the operating cycle of the enterprise in order to subsequently increase sales. In case of successful activity, additional net profit can be generated. It can be placed as free cash on a deposit or NSO and also generate additional profit, or temporarily cover the need for operating credit and loans and 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 definitely 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 the profit to repay the loan

Now there is a point of view that the profit can be distributed to repay the loan. This reasoning is also based on the substitution of the concepts of the source of financing and cash flow. The payment for the use of credit resources is interest rate for the period of the contract; for the use of profit as a source of development of the enterprise, the payment is dividends to the founders, but the mechanism for their formation is different. My opinion is that there is no economic sense to replace the nature of the source of financing, and in order to guarantee the release of cash flow, it is possible not to temporarily distribute profits for other purposes, i.e. leave on the same as in the example with an increase in current assets on sub-account 84.3 - retained earnings in circulation. In fact, for the financier - this is the amount of the benchmark to maintain solvency. If a decision is made to direct this profit to dividends, to 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 qualitative audit of retained earnings in the balance sheet.

As follows from the very definition of retained earnings, the audit should be carried out in two directions. First, check the very formation of retained earnings, which corresponds to the audit of net profit for each year. Then there is a check of the correctness of the decision of the founders regarding the implementation of legislative restrictions on 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 decisions taken and the timing of their implementation. The latter applies not only to dividends, but also to the formation of the authorized capital of a subsidiary. The roles of the 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 primary document through which he passes business transactions on the distribution of profit in accounting. It is important for the financial manager to confirm the economic feasibility of the source and the security of its cash flow. The Corporate Department confirms that there are no existing legal restrictions on such distribution and documenting solutions.

Separately, I would like to cancel the importance of restoring the distribution of profits, which may be required as a result 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 draw up all decisions, and bring the analytics of 84 accounts into line for adoption in the future right decisions by sources of funding.

Retained earnings (RP) - common accounting concept faced by many businesses. This term stands for funds received from the economic activity of the company and available at its disposal after the payment of tax deductions, dividends, fines, etc. In other words, all mandatory payments.

An alternative name for retained earnings is a retained surplus of funds. In some cases, the concept of "profit retention ratio" is used.

The main difference between retained earnings and net profit is that it is always calculated not only for a specific period, but also for general term the existence of the enterprise. Whereas net profit is determined only for the reporting period. But at the end of the year, which is logical, both indicators can be the same.

Retained earnings in the balance sheet refers to the passive part of the funds. By default, it is considered that it must be distributed among the owners and used to optimize the company's business model. Up to this point, such profits can only be called the debt of the company in relation to its owners. Refers to long term sources funding, so the goal financial strategy the company should be its mandatory accumulation.

What to do with retained earnings

There are several main ways to send an IR. Among them:

• payment of dividends to owners/shareholders;
• compensation for earlier losses;
• accumulation of the reserve fund;
• other goals agreed by the leaders.

IMPORTANT! As for the last point, it is worth making a small clarification. Under the heads of this case not nominal officials and business owners. As a rule, they resolve such issues during the final annual meeting, at which the relevant protocol is drawn up.

What determines the amount of retained earnings

In different reporting periods, the indicator may differ. It is influenced by things like:

• the amount of dividends paid to the owners of the company;
• change in net profit;
• increase or decrease in the value of commodity assets;
• change in overhead costs;
• revision of tax rates;
• change in the company's business strategy.

Undestributed profits. Check

All NP for the past years is summarized on account 84, the balance credit balance will be placed in line 1370 of the balance sheet. The same line contains the amount of uncovered loss (if any), which is indicated in brackets. Uncovered loss is the difference between the expenses and income of the company during the year, according to which the first point exceeds the second.

The invoice contains information about the face value and the change in the amount for the reporting year. At the end of the year, the amount is credited to account 84, while the loss is debited. The main task of this account is to store information about the purpose for which the funds were used.

An uncovered loss is sometimes called a deficit profit. You can compensate for the loss in whole or in part with the help of reserve capital. In the case of compensation, data on the initial loss is not filled in (in case of partial compensation, only the remaining amount of the loss is indicated in brackets).

IMPORTANT! At the request of the accounting department, additional lines can be written in the balance sheet to distinguish between figures for the reporting and previous years - 1371 and 1372.

Calculation of retained earnings. Detailed Formula

So, we found out that retained earnings are the amount of funds remaining at the disposal of the owners of the company after all tax and other mandatory contributions. This indicator can be calculated using the formula:

HPk \u003d HPN + PE - D

• PE - net profit minus income tax;

Note: The standard reporting period is a year.

If for the current period the company received a net loss instead of profit, the formula takes on a slightly different form:

NPk \u003d NPn - CHU - D

• HPK - surplus of funds at the end of the reporting period;
• HPn - the same indicator at the beginning of the period;
• BC - net loss;
• D - dividends distributed over the reporting period, based on the NP of the previous periods.

The remaining indicators are similar to the previous formula.

Keep a balance. Rational allocation of NP funds

It is believed that business scaling should be a priority goal when determining whether where will he go retained earnings. Competent reinvestment can increase the overall profitability of the business and the exchange value of its shares. Which, in turn, will be the main advantage for investors. The banal payment of dividends is good only in the short term, while the progressive development creates the potential for stable long-term earnings. If the company does not grow, investors will not see this potential and will want to increase dividends now, which is undesirable from a financial point of view for the company itself.

On the other hand, even taking into account the logic of the above, discussions often arise between the management and the management department of the enterprise as to where to direct retained earnings.

If management is opposed to allocating funds for the payment of dividends, but wants to use them exclusively for the implementation of new projects, shareholders may decide to sell shares.

As a result, the company's stock quotes will decline, as will its market capitalization.

Therefore, for financial management it is important to adhere to the so-called golden mean, providing investors with the return they expect, and at the same time directing funds for the development of the company.

Investments from the amount of retained earnings are often directed to the purchase of new equipment, marketing research, technology improvement and other items on which the further competitiveness and financial success of the business largely depend.