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).
Balance (Absolute values)
www.fin-analis.narod.ru – Financial analysis of your enterprise
CONCLUSION ON ANALYSIS OF THE FINANCIAL CONDITION OF THE ENTERPRISE
Enterprise: OJSC "PromInvestGroup"
Analysis period: from 4Q. 2001 1 sq. each 2004
Currency: thousand rubles
Financial condition is the most important characteristic of business activity and reliability of an enterprise. It is determined by the property at the disposal of the enterprise and the sources of its financing.
| Name of balance sheet items | 4 sq. 2001, thousand rubles | 1 sq. 2004, thousand rubles | Growth, thousand roubles. | Growth, % |
| Current assets: | 8 481 721,75 | 12 320 451,00 | 3 838 729,25 | 45,26 |
| Cash | 11 693,15 | 18 391,00 | 6 697,85 | 57,28 |
| Short-term investments | 309,42 | 2 309,00 | 1 999,58 | 646,23 |
| Short-term receivables: | 6 347 588,83 | 10 970 791,00 | 4 623 202,17 | 72,83 |
| Accounts and bills receivable | 6 131 614,03 | 7 556 982,00 | 1 425 367,98 | 23,25 |
| Intercompany receivables | 0,00 | 0,00 | 0,00 | 0,00 |
| Other receivables | 215 974,80 | 3 413 809,00 | 3 197 834,20 | 1 480,65 |
| Long-term accounts receivable | 12 317,40 | 78 622,00 | 66 304,60 | 538,30 |
| Inventory: | 1 040 546,65 | 1 239 482,00 | 198 935,35 | 19,12 |
| Raw materials, materials and components | 1 030 875,79 | 1 227 148,00 | 196 272,21 | 19,04 |
| Unfinished production | 1 810,03 | 3 429,00 | 1 618,98 | 89,44 |
| Finished products | 7 860,84 | 8 905,00 | 1 044,16 | 13,28 |
| Other stocks | 0,00 | 0,00 | 0,00 | 0,00 |
| Future expenses | 1 069 266,30 | 10 856,00 | -1 058 410,30 | -98,98 |
| Other current assets | 0,00 | 0,00 | 0,00 | 0,00 |
| Long-term assets: | 9 316 721,76 | 12 608 342,00 | 3 291 620,24 | 35,33 |
| Land, buildings and equipment | 8 029 542,75 | 11 348 925,00 | 3 319 382,25 | 41,34 |
| Intangible assets | 5 382,90 | 0,00 | -5 382,90 | -100,00 |
| Long-term investments | 123 451,03 | 219 956,00 | 96 504,97 | 78,17 |
| Unfinished investments | 1 158 345,08 | 1 039 461,00 | -118 884,08 | -10,26 |
| Other long-term assets | 0,00 | 0,00 | 0,00 | 0,00 |
| TOTAL ASSET | 17 798 443,51 | 24 928 793,00 | 7 130 349,49 | 40,06 |
| Current responsibility: | 7 459 962,03 | 11 360 757,00 | 3 900 794,97 | 52,29 |
| Short-term loans | 170 802,76 | 209 673,00 | 38 870,24 | 22,76 |
| Accounts payable: | 7 287 166,60 | 11 149 301,00 | 3 862 134,40 | 53,00 |
| Bills and bills payable | 5 260 494,75 | 7 604 087,00 | 2 343 592,25 | 44,55 |
| Taxes payable | 620 752,68 | 1 595 815,00 | 975 062,32 | 157,08 |
| Intercompany accounts payable | 0,00 | 0,00 | 0,00 | 0,00 |
| Advances received | 7 668,58 | 63 151,00 | 55 482,42 | 723,50 |
| Dividends payable | 13 524,15 | 2 399,00 | -11 125,15 | -82,26 |
| Other accounts payable | 1 384 726,44 | 1 883 849,00 | 499 122,56 | 36,04 |
| revenue of the future periods | 1 896,40 | 743,00 | -1 153,40 | -60,82 |
| Reserves for upcoming expenses and payments | 96,26 | 1 040,00 | 943,74 | 980,37 |
| Other current liabilities | 0,00 | 0,00 | 0,00 | 0,00 |
| Long term duties: | 0,00 | 2 020,00 | 2 020,00 | 0,00 |
| Long-term loans | 0,00 | 2 020,00 | 2 020,00 | 0,00 |
Other long-term liabilities
0.00 0.00 0.00 0.00 Own capital: 10,338,481.48 13,566,016.00 3,227,534.52 31.22 Share capital 697,384.26 697,384.00 -0.26 0.00 Reserves and funds 2,431,053.05 1,247,696.00 -1,183,357.05 -48.68 Additional capital 6,507,893.17 10,729,715.00 4,221,821.83 64.87 Retained earnings 623,775.12,790 120.00 166,344.88 26.67 Other equity 78,375.89 101,101.00 22,725.11 29.00 TOTAL LIABILITIES 17,798,443.51 24,928,793.00 7,130,349.49 40.06Analysis of the composition and structure of the balance sheet asset
The balance sheet currency of the enterprise for the analyzed period increased by 7,130,349.49 thousand rubles. or by 40.06%, which may indirectly indicate an expansion of economic turnover.
Analysis of the balance sheet showed that there was a change in the structure of assets due to an increase in the amount of non-current assets by 3,291,620.24 thousand rubles. or by 35.33%, and an increase in the amount of current assets by 3,838,729.25 thousand rubles. or by 45.26%. From a financial point of view, this indicates positive results, as property has become more mobile.
Chart 1. Structure of balance sheet assets, thousand rubles.
The change in the balance sheet asset was influenced mainly by the change in the amount of current assets.
Changes in the composition of non-current assets in the analyzed period were ensured by the following changes in their components:
q the amount of fixed assets in the analyzed period increased by 3,319,382.25 thousand rubles. or by 41.34%;
q the amount of intangible assets decreased by 5,382.90 thousand rubles. or by 100.00%;
q the amount of long-term investments increased by 96,504.97 thousand rubles. or by 78.17%;
q the amount of unfinished investments decreased by 118,884.08 thousand rubles. or by 10.26%.
The decrease in the share of intangible assets over the last period indicates the lack of innovative focus of the enterprise.
An increase in long-term investments, if they are aimed at increasing fixed assets, can be considered a positive thing.
The following changes have occurred in the composition of current assets:
q the amount of cash increased in the period under review by 6,697.85 thousand rubles. or by 57.28%;
q the amount of short-term investments increased by 1,999.58 thousand rubles. or by 646.23%;
q the amount of short-term receivables increased by 4,623,202.17 thousand rubles. or by 72.83%;
q the amount of inventory increased by 198,935.35 thousand rubles. or by 19.12%;
q the amount of deferred expenses decreased by 1,058,410.30 thousand rubles. or 98.98%;
q the amount of other current assets has not changed.
It is necessary to analyze changes in the above-described components of working capital in order to determine which of the factors most influences the change in their amount.
An increase in the amount of short-term investments in the property structure indicates an increase in the business activity of the enterprise.
An increase in an enterprise's accounts receivable can be considered a negative change in the balance sheet structure. Perhaps the company is having problems paying for shipped products. To identify the reasons, it is necessary to analyze in more detail the debt for each counterparty and the urgency of its occurrence.
FINANCIAL RESULTS
Net sales revenue for the analyzed period increased from 2,309,918.58 thousand rubles. and up to 3,774,450.00 thousand rubles. or by 63.40%. The cost value changed by 62.79%. In general, the share of cost in total revenue decreased from 84.46% to 84.15%.
In general, during the analyzed period, the share of gross profit increased from 15.54% to 15.85%, which indicates a positive trend in changes in the structure of the enterprise’s income.
Operating profit increased in the analyzed period from 350,670.17 to 562,723.00 thousand rubles. or by 60.47%. This indicates an increase in the profitability of the enterprise's operating activities.
Income from the financial activities of the enterprise decreased in the analyzed period from -1,811.53 to -17,181.00 thousand rubles. The financial activity of the enterprise at the end of the analyzed period was unprofitable, and this loss amounted to -17,181.00 thousand rubles.
The amount of income from non-operating operations tended to decrease and amounted to 5,567.00 thousand rubles. At the same time, expenses for non-operating activities at the end of the period were at the level of 9,203.00 thousand rubles, and exceeded income by 3,636.00 thousand rubles. The results of comparing the rates of change in income and expenses associated with non-operating activities indicate an improvement in its profitability (reduction in loss ratio).
At the end of the analyzed period, the company had a net profit in the amount of 428,812.00 thousand rubles, which had an upward trend, which indicates an increase in the company's source of its own funds received as a result of financial and economic activities.
In the structure of the enterprise's income, the largest share is made up of profit from operating activities, which indicates the normal production activity of the enterprise.
Chart 3. Income from activities, thousand rubles.
In general, the financial condition of an enterprise can be characterized and analyzed using a number of indicators of liquidity, financial stability, solvency and profitability.
Horizontal analysis
The increase in equity capital occurred due to an increase in retained earnings.
An increase in retained earnings may be the result of the efficient operation of an enterprise.
The company had no losses on its balance sheet during the analyzed period.
During the analyzed period, the company had no long-term liabilities.
By the end of the analyzed period, short-term liabilities were represented only by commercial liabilities. At the beginning of the year, short-term financial debt amounted to 3,000 thousand rubles; at the end of the year it was repaid. This is a good indicator.
The structure of accounts payable at the end of the analyzed period is dominated by debt to the budget (49.1%). The second largest are debts to suppliers and contractors (25.63%).
In the analyzed period, the company had no debt on bills payable.
In the analyzed period, the highest growth rates are characterized by debt to the budget, to suppliers and contractors.
The balance sheet currency at the end of the reporting period increased compared to the beginning (in our case there was an increase of 108%), and there was also an increase in equity capital (an increase of 64.26%);
According to the balance sheet, there is a profit for the reporting year (28,029 thousand rubles), and there are also no uncovered losses in the balance sheet for the reporting year and previous years;
The growth rate of current assets is higher than the growth rate of non-current assets (the growth of current assets was 386.39%, and of non-current assets - 103.08%);
The organization's equity capital exceeds borrowed capital and its growth rate is higher than the growth rate of borrowed capital (in our case, equity capital exceeds borrowed capital, but its growth rate is lower);
The growth of current assets amounted to 386.39%, and non-current assets - 103.08%, equity capital at the end of the period exceeded borrowed capital, but its growth rate was lower, the growth rate of accounts receivable was higher than that of accounts payable, which is a good indicator.
We can make a preliminary conclusion that the balance sheet of the enterprise can be classified as “good” and the enterprise at the end of the period is financially stable.
But based on a general assessment of the structure of an enterprise’s balance sheet, one cannot make a “final diagnosis” of its financial condition. Further analysis should be in-depth primarily in the areas of balance sheet liquidity and financial stability of the organization.
ANALYSIS OF FINANCIAL STABILITY OF THE ENTERPRISE
a) Availability of own working capital
b) Availability of own working and long-term borrowed funds
Er = Ec + DK = (IS + DK) – VA
c) The total amount of the main sources of funds for the formation of reserves and costs
EΣ = Er + KK = (IS+DK+KK) – VA
a) Availability of own working capital
b) Availability of own working and long-term borrowed funds
Financial indicators (Absolute values, thousand rubles)
The total liquidity ratio (current ratio), which characterizes the overall provision of an enterprise with working capital for conducting business activities and timely repayment of the enterprise's urgent (current) obligations, decreased in the period under review from 1.137 to 0.992, or by 12.71%. The value of the indicator indicates an insufficient level of coverage of current liabilities with current assets and overall low liquidity. This may indicate difficulties in marketing products and problems associated with organizing supplies.
The negative trend in this indicator for the analyzed period reduced the likelihood of repaying current liabilities at the expense of inventories, finished products, cash, accounts receivable and other current assets.
The quick liquidity ratio (quick liquidity ratio), reflecting the share of current liabilities covered by cash and the sale of short-term securities, decreased in the analyzed period from 0.824 to 0.616 (recommended range of values from 0.40 to 1.0) or by 25 ,20%.
The absolute liquidity ratio, reflecting the share of current liabilities covered solely by cash, increased in the analyzed period from 0.0016 to 0.0026 (with a recommended value of 0.30) or by 59.73%. Thus, during the analyzed period, the company slightly improved its ability to immediately repay current obligations using cash.
Chart 4. Liquidity ratios of the enterprise
The coefficient of autonomy (financial independence), which determines the degree of independence of the enterprise from external sources of financing and characterizes the share of equity in the balance sheet, decreased in the analyzed period from 0.581 to 0.522 (recommended range of values from 0.5 to 0.8) or by 10.08 %. A decrease in the value of the coefficient indicates a slight decrease in the financial independence of the enterprise.
The share of borrowed capital in the enterprise's balance sheet increased in the analyzed period from 0.419 to 0.478, or by 13.97%. Thus, during the analyzed period, the company has a tendency to increase the use of borrowed capital.
In this regard, the ratio of total liabilities to equity capital (which determines the amount of borrowed funds attracted by an enterprise per one ruble of equity capital invested in assets) in the analyzed period was 0.225 (the recommended range of values is from 0.25 to 1.0), i.e. increased by 0.19, or 26.74%.
Chart 5. Capital structure indicators
Return on sales, which reflects the share of net profit in sales volume, decreased by 2.50% and amounted to 11.36%, which is a negative trend.
The enterprise's return on equity, which determines the efficiency of using funds invested in the enterprise, in the current period amounted to 13.81% and increased by 32.64%, which is a positive fact.
Return on current assets (reflecting the efficiency of using current assets and showing how much profit a unit of working capital of an enterprise brings) in the current period amounted to 15.22% and increased by 19.91%, which is a positive result of the enterprise.
Return on non-current assets (reflecting the efficiency of using non-current assets and showing how much profit a unit of non-current capital of an enterprise brings) was 13.72% in the current period and increased by 18.69%, which is a positive trend.
Graph 6. Profitability ratios
Main conclusions:
The balance sheet currency of the enterprise for the analyzed period increased by 7,130,349.49 thousand rubles. or by 40.06%, which may indirectly indicate an expansion of economic turnover.
The presence of net profit at the enterprise in the analyzed period indicates an available source of replenishment of working capital.
The company's return on equity is at a fairly high level, which indicates the effectiveness of its activities.
The level of borrowed capital is so high that the enterprise is heavily dependent on debt, which means there is a high risk of its insolvency if interruptions in the flow of income occur.
The repayment period for receivables is decreasing, which indicates an improvement in the business activity of the enterprise.
Dynamics of decrease or increase in retained earnings
3. Dynamics of decrease or increase in the volume of retained earnings.
In 2005, compared to 2003, the volume of retained earnings decreased by 71%, and compared to 2004, decreased by 31%. A decrease in profit indicates a deterioration in the ability to replenish working and fixed assets for the organization’s sustainable economic activities.
Balance sheet structure analysis
| Indicators from the balance sheet form No. 1 | Previous years | Reporting year | Changes compared to the reporting year (+,-) | |||||
| thousand roubles. 2003 | % to balance | thousand roubles. 2004 | % to balance | thousand roubles. 2005 year | % to balance | 7-3 | 7-5 | |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| Assets | ||||||||
| I. Non-current assets | 23451 | 72 | 24952 | 71 | 26651 | 69,31 | -2,69 | -1,69 |
| including: — fixed assets; | 23267 | 71 | 24399 | 70 | 26166 | 68,05 | -2,95 | -1,95 |
| - long-term financial investments | — | — | — | — | — | — | — | |
| 2. Current assets | 9200 | 28,18 | 9875 | 28,35 | 11803 | 30,69 | 2,51 | 2,34 |
| including: - reserves; | 8399 | 25,72 | 9034 | 25,94 | 10476 | 27,24 | 1,52 | 1,3 |
| — accounts receivable up to a year; | 645 | 1,98 | 832 | 2,39 | 1089 | 2,83 | 0,85 | 0,44 |
| — short-term financial investments; | — | — | — | — | — | — | — | — |
| - cash | 68 | 0,21 | 9 | 0,03 | 238 | 0,62 | 0,41 | 0,59 |
| Balance (I + II) | 32651 | 32651 | 34827 | 34827 | 38454 | 38454 | — | — |
| III. Capital and reserves | 20202 | 61,9 | 23536 | 67,6 | 22933 | 59,64 | -2,26 | -7,96 |
| including: — authorized capital; | 5573 | 17,06 | 5573 | 16 | 5573 | 14,5 | -2,56 | -1,5 |
| - Extra capital; | 22306 | 68,32 | 21193 | 60,85 | 19596 | 51 | -17,32 | -9,85 |
| - Reserve capital; | 2 | 0,006 | 2 | 0,006 | — | — | — | — |
| — retained earnings (uncovered loss] | (7679) | -23,52 | (3232) | -9,28 | (2236) | -5,8 | -29,32 | -15,08 |
| IV Long-term liabilities | 535 | 1,64 | 4871 | 14 | 7014 | 18,24 | 16,6 | 4,24 |
| V. Current liabilities | 11914 | 36,5 | 6420 | 18,43 | 8507 | 22,12 | -14,38 | 3,69 |
| including: - loans and credits; | — | — | 350 | 1,005 | 350 | 0,91 | — | -0,095 |
| - accounts payable | 11914 | 36,5 | 6070 | 17,43 | 8157 | 21,21 | -15,29 | 3,78 |
| Balance (III + IV + V) | 32651 | 32651 | 34827 | 34827 | 38454 | 38454 | — | — |
Analysis of the structure of indicators of form No. 2
| Indicators of form No. 2 | Previous years | Reporting year | Changes in relation to the reporting year (+; -) | |||||
| thousand roubles. 2003 | % of revenue | thousand roubles. 2004 | % of revenue | thousand roubles. 2005 year | % of revenue | 7-3 | 7-5 | |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| Sales revenue | 13803 | 100 | 17983 | 100 | 18954 | 100 | ||
| Product cost | 14690 | 106,43 | 17954 | 99,84 | 19439 | 102,56 | -3,87 | 2,72 |
| Gross profit | — | — | 28 | 0,16 | 485 | 2,56 | — | 2,4 |
| Expenses (commercial and administrative) | — | — | — | — | — | — | — | — |
| Profit (loss) from sales | (887) | -6,43 | 28 | 0,16 | 485 | 2,56 | 8,99 | 2,4 |
The table shows that the share of fixed assets has decreased, the share of working capital has increased. At the same time, the share of receivables and inventories increased while the cost of products decreased, which indicates the immobilization of working capital. Considering the liabilities of the balance sheet, it should be noted the low share of capital and reserves. The negative point is the increase in the share of accounts payable.
4. The ratio of items that make up non-current assets.
Table 3 shows a decrease in the volume of fixed assets, which indicates the disposal of fixed assets or the absence of a policy for the purchase of modern equipment.
5. Change in the structure of total assets.
An increase in the share of current assets in total assets indicates an increase in the mobility of the organization's property.
6. Change in the structure of current assets.
An increase in the share of receivables indicates problems associated with consumer payments for products and services. An increase in the share of cash also indicates an increase in own working capital.
7. Rate of change in inventories.
Tables 1 and 2 show a faster growth in the rate of inventory value compared to the growth rate of revenue and profit, which indicates a decrease in the rate of inventory turnover, which is a negative sign for the organization.
8. Change in debt balance.
According to Table 1, there is a passive balance (accounts payable exceed receivables). It can be argued that this indicates negative trends in the development of the organization.
9. Change in equity capital and reserves.
A decrease in the share of equity capital and reserves indicates a deterioration in the financial stability of the organization.
10. Change in the share of short-term borrowed funds.
An increase in the share of short-term borrowed funds compared to the increase in the share of profit in revenue by 2005 indicates an increase in the financial instability of the organization.
Conclusion: after conducting a horizontal and vertical analysis, we can conclude that the enterprise is solvent for this period, because assets are greater than external liabilities. Accordingly, the share of risk is not significant, however, for some items there is a decrease, which in the future can lead to financial instability of the enterprise. But at the same time, there is also an increase in cash and current assets, which indicates the potential of the enterprise, as well as increased stability.
Increase in additional capital
You can increase additional capital by revaluing fixed assets or intangible assets (IMA).
According to clause 15 of PBU 6/01 “Accounting for fixed assets,” a commercial organization can revalue groups of similar fixed assets at current (replacement) cost no more than once a year (at the beginning of the reporting year). The amount of revaluation of an object of fixed assets as a result of revaluation is credited to the additional capital of the organization. Similar standards for the revaluation of intangible assets are given in clauses 17 and 21 of PBU 14/2007 “Accounting for intangible assets”.
When making this decision, the following must be considered:
— subsequently, fixed assets and intangible assets are revalued regularly. The application of the right to revaluate assets, the procedure and frequency of its implementation are fixed in the accounting policies of the organization;
— on overvalued fixed assets you will have to pay more corporate property tax. According to paragraph 1 of Art. 374 of the Tax Code of the Russian Federation, the object of taxation for Russian organizations is movable and immovable property recorded on the balance sheet as fixed assets in the manner established for accounting. The very amount of tax can be accepted as expenses for the purposes of calculating income tax (clause 1, clause 1, article 264 of the Tax Code of the Russian Federation).
Taking this into account, the tax overspending will be:
- 1.76% of the amount of increase in additional capital by the amount of revaluation of fixed assets = 2.2% (the maximum rate of tax on property of organizations established by clause 1 of Article 380 of the Tax Code of the Russian Federation) x (1 - 0.2) (including tax profit rates of 20%);
— to carry out the revaluation of fixed assets or intangible assets, an appraiser’s report will be required.
It is possible to increase the additional capital of an LLC by making contributions to the property of the company by participants on the basis of Art. 27 of the LLC Law.
So, according to paragraphs 1, 3, 4 of Art. 27 of the Law, the participants of the company are obliged, if provided for by the charter, by decision of the general meeting of participants to make contributions to the property of the company. Such an obligation of participants may be provided for by the charter of the company upon its establishment or by introducing amendments to the charter by decision of the general meeting of the company’s participants, adopted unanimously by all participants. Contributions to the company's property are made in money, unless otherwise provided by the company's charter or a decision of the general meeting of participants. Contributions to the company's property do not change the size and nominal value of the participants' shares in the authorized capital of the company.
Contributions made to the property of the LLC are subject to reflection in the additional capital of the company. The procedure for reflecting contributions to the company's property in the financial statements under Art. 27 of the LLC Law is not regulated by law. However, since the list of transactions that form additional capital is open and there are corresponding explanations from the financial department (Letter of the Ministry of Finance of Russia dated April 13, 2005 N 07-05-06/107), it is advisable to include these amounts specifically in additional capital.
Decrease in retained earnings
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 net profit. 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 allocate 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 cost, VAT and other costs. The loan reflects revenue. The final balance is transferred to account 99 “Profits and losses”.
The following entries are made in the accounting book:
- 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:
- Sale and rental of assets owned by the company;
- Depreciation and revaluation of non-current assets;
- Transactions with foreign currency;
- Investments in business shares of other companies;
- Liquidation and donation of property;
- Income and expenses from transactions with securities.
The 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.
The components of retained earnings are not always cash in the form of cash or in a checking account (a writedown of fixed assets increases earnings, but does not add cash). This must be taken into account when conducting economic analysis.
In the last days of the reporting year, the chief accountant writes off 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).
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
To calculate retained earnings, you need to know its value at the beginning of the year, net profit (or loss) for the year and the amounts paid to owners.
For JSCs (joint stock companies) these are dividends to shareholders, and for LLCs (Limited Liability Companies) these are payments to the founders.
This data is taken from lines 1370 of the Balance Sheet and 2400 of the Income Statement. Interim payments during the year from future profits must be reflected in the order for the enterprise.
If a profit is made in the current year, then the calculation formula will be as follows:
NPoch.year = NPat the beginning of the year + Pnet. – Dvypl., whereNPat the beginning. year - retained earnings at the beginning of the year, Pchist. – net profit,
Double – dividends paid to shareholders.
If there is a loss this year, the formula will change slightly:
NPoch.year = NPat the beginning of the year – Dec. – Dw., where Dec. – 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.
Previous reporting years
There are two possible ways to account for accumulated profits:
- 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, data from the following sources is required:
- 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.
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 items, it can be disposed of more freely, but within the framework of the company’s charter and the law. Typical entries for various areas of spending profit will be as follows:
- 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;
- Dt84Kt82 – contributions to the reserve fund (creation or replenishment);
- Dt84Kt75 (80) – increase in the authorized capital (for an LLC on a loan account 75, and for a JSC – account 80);
- 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 event of bankruptcy of the company. 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.
Directing retained earnings into production (both assets and liabilities) is essentially 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 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 carried out with the help of working capital.
Increase in additional capital
You can increase additional capital by revaluing fixed assets or intangible assets (IMA).
According to clause
15 PBU 6/01 “Accounting for fixed assets”, a commercial organization can revalue groups of similar fixed assets at current (replacement) cost no more than once a year (at the beginning of the reporting year).
The amount of revaluation of an object of fixed assets as a result of revaluation is credited to the additional capital of the organization. Similar standards for the revaluation of intangible assets are given in clauses 17 and 21 of PBU 14/2007 “Accounting for intangible assets”.
When making this decision, the following must be considered:
— subsequently, fixed assets and intangible assets are revalued regularly. The application of the right to revaluate assets, the procedure and frequency of its implementation are fixed in the accounting policies of the organization;
— on overvalued fixed assets you will have to pay more corporate property tax. According to paragraph 1 of Art.
374 of the Tax Code of the Russian Federation, the object of taxation for Russian organizations is movable and immovable property recorded on the balance sheet as fixed assets in the manner established for accounting.
The very amount of tax can be accepted as expenses for the purposes of calculating income tax (clause 1, clause 1, article 264 of the Tax Code of the Russian Federation).
Taking this into account, the tax overspending will be:
- 1.76% of the amount of increase in additional capital by the amount of revaluation of fixed assets = 2.2% (the maximum rate of tax on property of organizations established by clause 1 of Article 380 of the Tax Code of the Russian Federation) x (1 - 0.2) (including tax profit rates of 20%);
— to carry out the revaluation of fixed assets or intangible assets, an appraiser’s report will be required.
It is possible to increase the additional capital of an LLC by making contributions to the property of the company by participants on the basis of Art. 27 of the LLC Law.
So, according to paragraphs 1, 3, 4 of Art. 27 of the Law, the participants of the company are obliged, if provided for by the charter, by decision of the general meeting of participants to make contributions to the property of the company.
Such an obligation of participants may be provided for by the charter of the company upon its establishment or by introducing amendments to the charter by decision of the general meeting of the company’s participants, adopted unanimously by all participants.
Contributions to the company's property are made in money, unless otherwise provided by the company's charter or a decision of the general meeting of participants. Contributions to the company's property do not change the size and nominal value of the participants' shares in the authorized capital of the company.
Source: https://zullus.ru/umenshenie-neraspredelennoj-pribyli/
Increase in retained earnings (reduction of uncovered loss)
You can increase retained earnings or reduce losses by providing gratuitous assistance to participants (shareholders). However, this option may entail significant tax costs in the form of a 20% profit tax on the entire amount of gratuitous injections (clause 8 of Article 250 of the Tax Code of the Russian Federation).
It is possible to avoid significant tax losses only in the cases provided for in paragraphs. 11 clause 1 art. 251 Tax Code of the Russian Federation. In particular, income not taken into account when determining the tax base includes property received by a Russian organization free of charge:
- from an organization, if the authorized capital of the receiving party consists of more than 50% of the contribution (share) of the transferring organization;
- from an organization, if the authorized capital of the transferring party consists of more than 50% of the contribution (share) of the receiving organization;
- from an individual, if the authorized capital of the receiving party consists of more than 50% of the contribution (share) of this individual.
The only limitation is that the received property (except for funds) is not transferred to third parties within one year from the date of its receipt. In addition, it is necessary to take into account paragraphs. 4 paragraphs 1 art. 575 of the Civil Code of the Russian Federation, according to which donation is not allowed, with the exception of ordinary gifts, the value of which does not exceed 500 rubles, in relations between commercial organizations.
You should pay attention to ways to improve such an indicator as retained earnings (uncovered loss), reflected on line 470 of the balance sheet. This indicator characterizes the success of the company over a number of years. The resulting losses can be covered not only by injections from outside, but also by redistributing the structure of equity capital and reserves. Moreover, this will not affect the final value of net assets.
The main ways to cover losses are as follows:
2. Reserve fund. According to paragraph 1 of Art. 35 of the Law on JSC, a reserve fund is created in the amount of at least 5% of its authorized capital through annual contributions of at least 5% of net profit until the amount established by the company’s charter is reached. One of the purposes of the reserve fund is to cover society's losses. The Law on LLC does not stipulate a detailed procedure for the creation and use of the reserve fund of an LLC, however, in practice, such companies, as a rule, enshrine in the charter and apply the procedure established by the Law on JSC.
3. Additional capital. An organization through reorganization can reclassify additional capital and reserves as retained earnings. When merging, joining, dividing, spinning off and transforming an organization, if the value of the net assets of the successor turns out to be greater than the amount of the authorized capital, then the difference is subject to settlement in the opening balance sheet in the section “Capital and reserves” with the numerical indicator “Retained earnings (uncovered loss)”. In case of conversion of shares, the difference that arises is attributed to additional capital (Order of the Ministry of Finance of Russia dated May 20, 2003 N 44n).
How is retained earnings (uncovered loss) formed and used?
The increase in the balance of retained earnings, reflected in the credit of account 84 “Retained earnings (uncovered loss)”, occurs due to the net profit of the reporting year, which is written off to account 84 from account 99 “Profits and losses” with the final turnover of December of the reporting year (Instructions for using the Plan accounts).
The net profit indicator increases:
— correction in the reporting period of significant errors of previous years made by companies that are not small enterprises, which led to overestimation of expenses during the period of errors (clause 1, clause 9, clause 14 of PBU 22/2010);
— write-off to account 84 of additional capital from the revaluation of non-current assets disposed of in the reporting period (clause 15 of PBU 6/01, clause 21 of PBU 14/2007);
— restoration in the composition of retained earnings of the amounts declared and unclaimed after the expiration of the dividend payment period established by the current legislation of the Russian Federation (Letter of the Ministry of Finance of the Russian Federation dated January 27, 2012 N 07-02-18/01).
The use of retained earnings for the payment of dividends (including interim ones - clauses 1 and 2 of Article 42 of the Federal Law of December 26, 1995 N 208-FZ; clause 1 of Article 28 of the Federal Law of February 8, 1998 N 14- Federal Law), is reflected by posting to the debit of account 84 in correspondence with accounts 75 “Settlements with founders”, 70 “Settlements with personnel for wages”.
Also, the net profit indicator decreases when:
— increasing the authorized capital at the expense of retained earnings;
— direction of retained earnings to the reserve fund.
The use of retained earnings for expenses, for example, as a source of capital investments, is reflected only in analytical accounting by reserving the corresponding amount in a special subaccount (subaccount) of account 84, for example:
Sub-account (sub-account) “Retained earnings (uncovered loss)”
Subaccount (subconto) “Use of retained earnings as a source of capital investments.”
The increase in the balance of uncovered loss, reflected in the debit of account 84, occurs due to the reflection of the loss of the reporting year, which is written off to account 84 from account 99 “Profits and losses” with the final turnover of December of the reporting year
The indicator of uncovered loss increases the correction in the reporting period of significant errors of previous years made by companies that are not small enterprises, which led to an understatement of expenses in the period of errors (clause 1, clause 9, clause 14 of PBU 22/2010).
Repayment of uncovered losses from relevant sources is reflected in the credit of account 84 “Retained earnings (uncovered loss)” in correspondence with the accounts:
- 80 “Authorized capital” - when bringing the amount of the authorized capital to the value of the organization’s net assets in connection with the repayment of a loss due to the excess of the amount of the authorized capital over the amount of the organization’s net assets;
Increase in deferred income
Deferred income includes:
1) income received in the reporting period, but relating to future reporting periods: rent or apartment payments, utility bills, revenue for freight transportation, for passenger transportation on monthly and quarterly tickets, subscription fees for the use of communications equipment, etc.;
2) the value of assets received by the organization free of charge;
3) receipts of debt for shortfalls identified in previous years, the movement of upcoming receipts of debt for shortfalls identified in the reporting period for previous years is taken into account;
4) the difference between the amount recovered from the guilty persons for missing material and other assets and the cost listed in the organization’s accounting records.
When leasing, deferred income arises in the lessor's balance sheet when the leased asset is transferred to the lessee's balance sheet in the amount of the difference between the total amount of lease payments according to the leasing agreement and the cost of the leased property (clause 4 of Order of the Ministry of Finance of Russia dated February 17, 1997 N 15 “On reflection in accounting operations under a leasing agreement").
In practice, sometimes deferred income is classified as accounts payable or other liabilities, thereby unlawfully reducing the value of the company's net assets. Thus, if an organization does not have enough net assets, it is necessary to reconsider accounts payable and other liabilities for their qualification as deferred income.
Repayment of debt of participants (founders) for contributions to the authorized capital
If the authorized capital is not fully paid, line 410 of the balance sheet reflects the amount recorded in the constituent documents. The debt of the founders is indicated on line 240 “Accounts receivable (payments for which are expected within 12 months after the reporting date).”
The debt of participants (founders) for contributions to the authorized capital reduces the assets taken into account when calculating net assets, and therefore reduces the net assets themselves. Therefore, the easiest way to increase net assets will be to pay off the existing debt of the founders (participants) of the company.
"Financial newspaper. Regional issue", 2009, N 43 A. Talash K. e. Sc., member of the Chamber of Tax Consultants
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).
An increase in retained earnings on the balance sheet indicates
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: to share or not to share?
When it comes to retained earnings, among the questions that arise is this: what kind of profit should be distributed - only the last year’s, or can and should the profits of previous years be distributed? In the article by Ya.V. Sokolov, Doctor of Economics, professor, member of the Methodological Council on Accounting under the Russian Ministry of Finance, answers this question.
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 - NPk = NPn + PP - D, where NPk and NPn are the values of NP at the beginning and end of the period, D are payments to owners;
- If there is a loss – NPk = NPn – U – D, where U is the loss.
coursebook 3.docx
Retained earnings - net profit (or part thereof) not distributed in the form of dividends among shareholders (founders) and not used for other purposes. Typically, these funds are used to accumulate the property of a business entity or replenish its working capital in the form of free cash, that is, ready for a new turnover at any time. Retained earnings can increase from year to year, representing an increase in equity capital based on internal accumulation. In growing, developing joint stock companies, retained earnings over the years take a leading place among the components of equity capital. Its amount is often several times the size of the authorized capital.
Target (special) funds are created at the expense of the net profit of a business entity and must serve for certain purposes in accordance with the charter or decision of shareholders and owners. These funds are a type of retained earnings. In other words, this is retained earnings that have a strictly designated purpose.
Let's look at the Equity indicators in Appendix No. 5.
2.2 Structure of equity capital of CJSC Navigator, its analysis.
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 for retained earnings
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 - NPk = NPn + PP - D, where NPk and NPn are the values of NP at the beginning and end of the period, D are payments to owners;
- If there is a loss – NPk = NPn – 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 | D/t | K/t |
| Payment of income to company owners after approval of annual financial statements | 84 | 75 |
| Staff bonuses | 84 | 70 |
| Part of retained earnings is allocated: | ||
| To increase the size of the authorized capital | 84 | 80 (for JSC) 75 (for LLC) |
| To replenish reserve capital | 84 | 82 |
| For the increase in additional capital | 84 | 83 |
| To repay established losses from previous periods | 84/1 | 84/2 |
| For investment | 84/1 | 84/3 |
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.
https://www.youtube.com/watch?v=P3MeZFwmwP4
Sources for covering losses are various funds and reserves. Postings can be like this:
| Operation | D/t | K/t |
| Repayment of losses through: | ||
| – reserve fund | 82 | 84 |
| – additional capital | 83 | 84 |
| – authorized capital (reduction of the authorized capital to the amount of net assets is allowed) | 80 | 84 |
| – owner funds | 75 | 84 |
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.
Source: https://spmag.ru/articles/uchet-neraspredelennoy-pribyli
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 | D/t | K/t |
| 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:
| Operation | D/t | K/t |
| Repayment of losses through: | ||
| - reserve fund | ||
| — additional capital | ||
| — authorized capital (reduction of the authorized capital to the amount of net assets is allowed) | ||
| - owner funds |
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.
