How to calculate retained earnings in the balance sheet. Retained earnings (uncovered loss) in the balance sheet

Market economy always characterized by the competitive relations of various enterprises with each other. When making final reports, the most important parameter is profit. The labor efficiency of a business entity is reflected by its positive dynamics in comparison with others economic characteristics. In the future, development is influenced by the correct disposal of profits, which are preserved for use by the owners of the company.

In addressing this issue, management will set goals and plans, at a minimum, for the coming year. Rewards best employees, dividends, the amount of authorized assets and reserve resources are directly at the mercy of the distribution of all indispensable payments. retained earnings is the remaining profit after payment mandatory contributions and other types of payments. It is crossed with pure profit.

If there are no collections during the year, net and retained earnings are the same. They differ in that undistributed reflects indicators during the existence of the company, and net for the period of time for which the report is compiled.

These profits were not shared among the shareholders/owners of the firm. Only asset owners decide the future fate of profits. This issue will be submitted to the annual meeting. At the conclusion, a protocol is drawn up.

The main areas of expenditure of retained earnings are:

1. Dividend payments/costs;
2. Elimination of past damages;
3. Completing reserve savings;
4. Own goals of co-owners.

In accountant accounting, this concept has several interpretations. This is account 84 “Uncovered loss” - the result of the work.

In economic vision, this is capital for the past year, after the management’s decision, when all debts have been calculated by the accountant. The result of sales and provision of services can be positive or negative. It is registered in the “Sales” account under No.90. On sales it is reflected initial cost, value added tax and various expenses. The proceeds are reproduced against the loan.

The balance is sent to account number 99. Account No.99 called “Profits and Losses”. In the accounting book the following is noted: 1. Profit DT 90 KT992. Loss DT 99 CT 90Account 91 shows income that does not reflect the main functioning of the organization.

These include:

1. Sale or rent own resources firms;
2. Revaluation and depreciation of long-term funds;
3. Foreign exchange transactions with foreign money;
4. Investing in other projects;
5. Turnover of valuable materials.

Postings are divided into receipt of profit and loss. (DT 91 CT 99, DT 99 CT 91). Calculation of the totals of accounts 90-91 is called balance sheet reformation. Account balance 76 and 10 ( Extraordinary Income and expenses and materials).Increasing retained earnings increases when errors are made accounting staff which led to increased waste.

Elements of the Uncovered Loss can be not only finances in the form of amounts or in accounts (fixed assets are discounted, but this does not increase capital). This must be taken into account when performing scientific research. economic processes. Write-off of the total balance from 99 to 84 account, which denotes retained earnings. Account 99 is canceled and will not be used until next year. Such income is a liability.

Ideally, such proceeds should be invested in further improvement of the business. Line 1370 also expresses the passive, which is a negative value that is indicated by parentheses. Profit and uncovered loss- these are the parameters of the useful action of the company.

The accountant's report is almost the same, with the exception of the debit and credit entries. The loss is mainly covered by the residual profit for previous years, the reserve fund. Profits are distributed to shareholders.

Retained earnings from previous years can be calculated in two ways:

1. Yearly.
2. Cumulative - does not divide income into valid year and previous years, while subaccounts are created on account 84.

It is collected as a cumulative total from the beginning of the enterprise. The loss is covered with the balance of reserve funds. Annual calculations take into account subaccounts for calculation in different periods time.

For example, subaccount 84.3 – Retained earnings for previous years. Money amount previous years, in any case, is taken into account when calculating the report for the current year. Information about retained earnings is shown in the statement of changes in equity. In acquiring profit and its large quantities all members of economic relationships are passionate. This is the basis for an impeccably clean income for society, as a result of which the level of well-being increases.

The most important economic indicator showing the effective operation of a company is retained earnings. The positive dynamics of this indicator, along with other economic indicators may indicate positive performance of the company. Let's look in this article at what retained earnings are, where is it reflected on the balance sheet, and in what account is it recorded?

The concept of retained earnings

Retained earnings (loss) consists of such indicators as NP (loss):

• Current year;
• Previous years.

Only the owners of the company can dispose of this profit; this happens at the general meeting of shareholders, in accordance with the provisions stipulated in constituent documents. Actions to dispose of profit are recorded in the protocol general meeting and this serves as the basis for the accountant to create entries for the use of profits.

Retained earnings account

The company's NP is formed after carrying out the procedure for reforming the balance sheet in the 1C Accounting program. This happens with the last accounting entry, in which account 99 “Profits and losses” is closed to account 84 “Retained earnings (uncovered loss)”. And after this, the profit is distributed (used) on account 84.

Retained earnings in reporting

NP is taken into account in the liability balance sheet and is reflected in line 1370. It is shown on an accrual basis from the beginning of the company’s activities. Retained profit is net profit - this is the amount remaining after paying all taxes and after distributing shares between the owners, that is final result on account 84. If the company is closed (liquidated), then the amount of accumulated profit will be distributed among the owners (shareholders) of the company, so they are primarily interested in the positive result of this indicator.

But this line of the balance sheet can reflect not only profit, but also an uncovered loss of the company, this is when expenses exceed income. It is reflected in the balance sheet in parentheses. This can add up (accumulate):

• As a result financial year;
• From previous years.

Example: Leader LLC had the following indicators at the end of the financial year:

• Revenue from the sale of goods (services) – 50 million rubles.

including:

— sales of pasta – 30 million rubles.

— sales of agricultural products – 10 million rubles.

- implementation motor transport services– 10 million rubles;

• Non-operating income – 10 million rubles;
• The cost of goods (services) and distribution costs associated with the sale of goods and own services – 40 million rubles;
• Other expenses – 25 million rubles.

The uncovered loss amounted to 5 million rubles at the end of the financial year. (50 + 10 – 40 – 25).

If the company’s activities began only in the current period, then the data in the accounting. forms: page “Retained earnings (loss)” of the Balance Sheet and page “Net profit (loss)” of the Statement financial results will match.

Retained earnings for external users

NP is important only to the shareholders (owners) of the company, but also to external users (investors, bank employees, regulatory authorities).

Investors are interested in where this indicator is spent.

It can be spent:

• To pay dividends to shareholders;
• To pay off losses from previous periods of the company’s activities;
• For infusion investment flows in the development of the company (for example: acquisition of fixed assets, equipment, etc.);
• To increase authorized capital;
• To create a reserve fund;
• For other purposes established legislative acts RF.

If a loss is received, it can be repaid from the following sources:

• Due to own funds shareholders;
• Due to the profit received from previous periods of the company’s activities;
• Through the use (reduction) of the authorized capital;
• By using (reducing) the reserve fund.

It is important for investors that more profits are spent not on paying dividends, but on investment activity companies. But it is also important for them that the profit received before distribution increases every year, and not decreases.

Accounting entries for the use of profit (loss absorption)

The use of the organization's retained earnings is reflected as follows: accounting entries on accounting accounts:

The repayment of the company's loss is reflected as follows: accounting records on accounts:

retained earnings(or a loss that was not covered) at the end of the reporting period is displayed in line 1370 of the balance sheet. It records the result obtained cumulatively over several years.

Is it true that retained earnings are net profits?

Retained earnings are truly net profits that (as the name suggests) were not distributed (divided) among the participants/shareholders of the company. Net profit is considered to be that part of income from sales and non-sales operations that remains after paying taxes.

The decision on how to distribute this income rests solely with the owners. Traditionally, the issue of retained earnings is put on the agenda of the annual meeting of the company's owners. The adopted decision is documented in minutes, which are drawn up following the results of the general meeting of participants/shareholders.

The main ways of spending retained earnings are considered to be in the following directions:

• to pay dividends to participants/shareholders;
• repayment of past losses;
• replenishment (creation) of reserve capital;
• other goals formulated by the owners.

Is retained earnings an asset or a liability?

Retained earnings on the balance sheet are, of course, a liability. The value of this indicator indicates the company’s actual debt to its owners, since ideally this profit should be distributed among participants and invested in the further development of the business.

In fact, the company cannot dispose of retained earnings without the owners making a decision. The loss reflected in line 1370 is also on the passive side of the balance sheet, only this is a negative value, so the number is placed in parentheses.

Our article will help you better understand balance analysis "How to Read a Balance Sheet (Practical Example)?" .

Retained earnings and uncovered losses - what are they?

As mentioned above, retained earnings are the final income received by the company from its business activities, remaining after the transfer of income taxes and not yet divided (not directed to other purposes) by its owners.

Example 1

Voskhod LLC in 2018 made a profit of 800,000 rubles and paid income tax in the amount of 160,000 rubles. In line 1370 in the balance sheet liability at the end of 2018, Voskhod LLC should reflect 640,000 rubles. This is retained earnings.

The value in line 1370 of the balance sheet may be equal to that indicated in line 2400 of the financial results report if the company had no profits not distributed by the owners at the beginning of the year and no interim dividends were paid during the year.

Our article will help you read balance sheets correctly “Deciphering the lines of the balance sheet (1230, etc.)” .

As for the uncovered loss, this is the excess of the company's expenses over income at the end of the year.

Example 2

In 2018, Parus-Trade LLC received revenue from the provision of services and other non-operating income. Their total amount amounted to 400,000 rubles.

The costs associated with conducting the main activity (transportation) are equal to 380,000 rubles. Other company expenses (not taken into account for tax purposes) amounted to another 58,000 rubles. Profit tax was assessed in the amount of RUB 4,000. Reserve capital Parus-Trade LLC does not.

This means that at the end of 2018, after the balance sheet reformation, an entry of 42,000 rubles will appear in line 1370 in parentheses. (400,000 - 380,000 - 4,000 - 58,000).

An uncovered loss occurs when the company receives an actual loss and there are no financing reserves. The value entered in the liability side of the balance sheet in parentheses will reduce the total for section 3 of the balance sheet.

Among the main reasons for receiving an uncovered loss are:

• obtaining an actual negative financial result from the company’s activities due to the excess of costs over income;
• changes in accounting policies that had an impact on the financial condition of the company (this is directly stated in paragraph 16 of PBU 1/2008, approved by order of the Ministry of Finance of Russia dated October 6, 2008 No. 106n);
• found in this year mistakes made in previous years that affected the financial result (subclause 1, clause 9 of PBU 22/2010, approved by order of the Ministry of Finance of Russia dated June 28, 2010 No. 63n).

Read more about PBU 1/2008 in the material “ PBU 1/2008 “Accounting policies of the organization” (nuances)” .

How retained earnings from previous years are displayed

Retained earnings from previous years are accumulated in account 84. The balance on the credit of this account is transferred to balance sheet line 1370. Typically, there should be no movement in the debit of the account during the year, since profit distribution traditionally occurs at the end of the year after the annual meeting of the company's owners.

Retained earnings of the reporting year

The credit balance at the end of the year according to accounting account 99 is net profit. When reforming the balance sheet, it is written off to accounting account 84 (Dt 99 Kt 84) and constitutes retained earnings at the end of the reporting year.

In order to separate the indicators of retained earnings of the current (reporting) year from last year’s, some accountants allocate separate lines 1372 and 1372 in the balance sheet, which respectively reflect the retained earnings of the reporting period and previous years.

The use of retained earnings is the prerogative of the company's owners. And highlighting this financial indicator for different years in the balance sheet is primarily convenient for them. But it is worth keeping in mind that the retained earnings of the past year cannot be fully distributed without taking into account the company’s previous operating results.

IMPORTANT!The cost should not be allowed net assets of the company, after transferring for the payment of dividends, the retained earnings of the reporting year became less than the size of the authorized capital of the company and in the presence of a reserve fund. The caution applies to cases where uncovered losses were recorded in previous years. The decision to cover last year's losses from retained earnings of the reporting year is made exclusively by the owners of the company.

But retained earnings for previous years can be distributed by the participants/shareholders of the company not only at the end of the year, but at any time. The main thing is to hold a thematic meeting of all company owners and approve the appropriate decision.

Retained earnings: calculation formula

According to general accounting data, retained earnings are a company's net profit after taxes that can be distributed to the company's owners.

Based on global financial practice, retained earnings (hereinafter referred to as RR) are calculated using the following formula:

NPk = NPn - PE - Div,

where: NPk - NP at the end of the reporting year;

NPn - NP at the beginning of the reporting period;

PE - net profit remaining after accrual of income tax;

Div - dividends paid in the reporting year based on the NP of previous years.

If you do not have the NP value, then to calculate the NP you can use the following scheme:

• first calculate profit before tax (to determine it, calculate operating profit, which is defined as the difference between operating income and operating expenses);
• then subtract depreciation and interest costs from operating profit;
• Subtract tax from the resulting profit value.

Indicators for investors

When analyzing the financial condition of a company, investors pay attention to the use of retained earnings. If NP accumulates and is not put into circulation, this state of affairs should seem to suit investors, since they can count on significant dividends.

However, without investment in its activities, the company stops growing, and its income not only does not increase, but may also decrease (due to a drop in competitiveness, high wear and tear of equipment, and for other reasons related to the lack of investment). So a company that accumulates profits but does not invest in its activities cannot be attractive.

At the same time, a company that does not make a profit and does not pay dividends cannot interest investors at all.

The ideal option for investors is a company that invests the funds remaining after paying dividends in its development. Although the owners may decide not to pay dividends and direct the entire volume of NP into circulation.

Results

There is a separate line in the balance sheet to reflect retained earnings (profit remaining after the amount of income tax or net profit has been withdrawn from it). The figure entered into it corresponds to the amount of the entire net profit accumulated over the years of the company’s activity. During the reporting year, the value of retained earnings in accounting relating to this year can be seen in a separate accounting account. Dividends are paid out of net profit.

Retained earnings are the percentage or amount of net income that has not been paid out as dividends, but has been retained by the company for the purpose of reinvesting in operations or paying off debt obligations. Retained earnings are shown as equity (share capital) on balance. The retained earnings formula is calculated by adding the prior period's retained earnings to net income of the present period (or deduction in case of losses), as well as deduction of dividends paid.

Retained earnings are also called retained surplus.

Investocks explains 'retained earnings'

In most cases, companies retain surplus (excess) income for the purpose of investing in those investment opportunities where a company can generate growth, for example, investments such as purchasing new equipment or spending on research and development of existing production can have a significant effect on the company's growth.

Retained earnings can also be negative. This may be due to the fact that the loss ratio of the current financial year is greater than the retained earnings of previous years. In such cases, the indicator of retained earnings is usually called deficit.

The value of retained earnings in a personal account is adjusted each time an adjustment is made for income or expenses.
The amount of retained earnings is very often the subject of disputes between members of the company's board of directors and management. This is due to the fact that the benefit of shareholders is to receive maximum dividends, while it is more profitable for the company's management to reinvest retained earnings in new projects to receive maximum bonuses. In addition, often when paying smaller dividends, if the return on such shares is lower than the rate of return required by shareholders, they will sell the shares. In this scenario, the market price of the shares will fall, which will reduce the company's market capitalization. Thus, the company's management needs to maintain a balance between the possibilities of reinvesting retained earnings and the rate of return required by shareholders.

When taxes are subtracted from the money that a company earned from selling products or providing services, what remains is the so-called retained earnings, which is also called net earnings. The business owner can manage these finances at his own discretion. For any company, this profit is important, so in this article we will discuss how it is reflected in balance sheet and what are the nuances associated with it.

Concept

Retained earnings refers to the amount financial resources, which remain with the enterprise after fulfilling all obligations. Liabilities here refer mainly to taxes that must be paid to the state treasury. It is called undistributed because it has not yet been used to pay dividends to shareholders. This means that this is a kind of reserve, which consists of the organization’s profit. Usually it is used to purchase some assets or, in other words, to develop the company.

And retained earnings are made up of initial retained earnings, to which net profit is added, and dividend payments are subtracted from the resulting amount.

Regarding balance

Retained earnings of the reporting year are formed on the balance sheet of the enterprise as an active-passive account. It is shared by the owners of the company, but they have the right to use it only as specified in the charter. Money cannot be allocated for purposes that are not provided for in this document.

Here clear example this accounting concept. The company earned 1,000,000 rubles in a year, from which it paid income tax in the amount of 200 thousand rubles. The amount of 800 thousand rubles should appear in the passive balance sheet, which is the net profit of the company’s reporting year. In the balance sheet, the line number is 1370, and the uncovered loss is recorded in it.

Such profits from previous years can be reflected on the balance of account 99. By the way, accounting distinguishes between non-return income and net profit. They are created on different accounts and have different meanings. Accounting documentation of the reporting period remains in the company's archives. This is the legal procedure and should be followed by the accounting department.

Distribution

The activities of any company are related to financial risks, and therefore should be postponed. Many income is not fully distributed among participants; they direct some part of it to reserve fund. From there the money goes to cover existing financial obligations. Essentially this is internal source, through which financing occurs. The following funds can be formed from NPs:

• Fund for repair needs.
• Employees' vacation pay fund.
• Paying employees for length of service.

Moreover, there can be either one of these funds or three at once, everything depends on the capabilities of a particular organization and its priorities. And such profit can be used for the following needs:

• Payments of dividends to shareholders or participants.
• Covering losses that have accumulated during operations.
• Other goals that were determined by the shareholders and indicated in the charter.

In conclusion

Business managers should know what is included in retained earnings, although this is more likely to relate to work. But it is this line that has a great influence on the development of the company and helps move forward. You need to be able to correctly reflect it in the documentation in order to avoid problems with supervisory authorities, and in particular with tax office. The entire IR is kept by the chief accountant, but despite this, only shareholders can dispose of it, because accounting employees do not have such a right.