Accounting for retained earnings

Even the most successful enterprises need to be developed. In turn, development needs certain monetary investments, the main source of which, as a rule, is profit. The use of profit opens the widest opportunities for the owners of the enterprise. They are not limited in terms of the payback period of the project, are not compelled to report to third-party investors, can independently determine the amount of the allocated amount, etc. The only drawback of profit use is the reduction of dividends, however, taking into account the growth of profit in subsequent periods, the owners of the enterprise are ready to take such a step. That is why the account "undistributed profit" accumulates on itself rather large sums, and accounting of retained earnings, both accounting and management, is an integral part of the company's activities.

By the way, it is calculated quite simply retained earnings. Its formula consists of three main indicators: net profit for the year, from which it is necessary to deduct dividends paid to shareholders and add retained earnings that accumulated over the previous reporting periods. In the future, the index of retained earnings may also decrease if the funds accumulated in this account are recounted as contributions to the statutory or supplementary fund, as well as various types of reserve funds.

This is the main accounting for retained earnings. Based on the accounting data, the managers of the enterprise decide how to deal with the retained earnings accumulated for a year or several years on the corresponding account. In fact, the use of undistributed profits can be carried out in three main areas.

The first direction is, as already mentioned, the payment of dividends. In this case, the 75th account is credited, in a debit with, of course, 84th account. The enterprise may, depending on the agreed dividend policy, at any time distribute all undistributed profits between owners and shareholders. However, this is extremely rare, because in this case the company is deprived of one of the main sources of financing, which can adversely affect its further development.

The second direction is covering the losses of previous years. In this case, the 84th account at the beginning of the reporting period will be the credit balance, and, therefore, after receiving profit this year, it will be able to enter into a debit. There are no real opportunities to pay dividends, but the fact that the company was able to pay off its losses should instill in the shareholders confidence in its success in subsequent periods.

The third direction, which accounts for retained earnings, is to divert it to various types of funds, while loans such as 80, 82 and 83 are credited. Profit can increase the statutory fund, and also be deferred as a reserve in case of revaluation of the company's assets , Occurrence of insured events, etc.

Finally, the last option that needs to be considered is the accumulation of profits on the 84th account. In this case, the profit remains in the company as a source for its assets, which may be new equipment, shares of other companies, cash, etc. In most cases, the company chooses this path. Do not forget that accounting for retained earnings on the 84th account, as a result of which impressive amounts accumulate there, is a good sign of the company's financial well-being and a signal to potential creditors and investors that the company is truly on the path of development and progress.