Where can retained earnings be spent? The concept of retained earnings of an enterprise. What to do with retained earnings from previous years

16.07.2015

During the reporting year, the financial result of the organization’s activities (profit or loss) is reflected in account 99 “Profits and losses”. On December 31 of each year, when reforming the balance sheet, the amount of net profit (loss) received is written off from account 99 to account 84 “Retained earnings (uncovered loss).”

To make it more convenient for you to keep track of the use of profits, you can open sub-accounts for account 84:

“Profit to be distributed”;
"Retained earnings";
"Uncovered loss."

If at the end of the reporting year your organization made a profit, make a credit entry to account 84:

DEBIT 99 CREDIT 84 subaccount “Profit to be distributed”
- reflects the net profit of the reporting year.

If at the end of the reporting year your organization received a loss, make an entry in the debit of account 84:

DEBIT 84 subaccount “Uncovered loss” CREDIT 99
- reflects the net (uncovered) loss of the reporting year.

Use of profits

The decision on the distribution of net profit is made by the owners (founders) of the organization (general meeting of shareholders or meeting of participants in an LLC). Such a decision is usually made at the beginning of the year following the reporting year.

The distribution of net profit is within the exclusive competence of the general meeting of participants (shareholders) and cannot be carried out by the sole direction (order) of the head of the organization.

Net profit can be used for:

payment of dividends to shareholders (participants) of the organization;
creation and replenishment of reserve capital;
repayment of losses from previous years.

In the first two cases, reflect the use of net profit in the debit of account 84:

DEBIT 84 subaccount “Profit to be distributed” CREDIT 75 (70)
- dividends accrued to shareholders (participants) of the organization;

DEBIT 84 subaccount “Profit to be distributed” CREDIT 82
- net profit is used to create and replenish the organization’s reserve capital.

If the owners of the organization decided to use net profit to pay off losses of previous years, make an accounting entry to the subaccounts of account 84:

DEBIT 84 subaccount “Profit subject to distribution” CREDIT 84 subaccount “Uncovered loss”
- net profit is aimed at repaying losses of previous years.

The meeting of shareholders (participants) of the organization may decide not to distribute the profit received at all (or leave some part of it undistributed).

After you have recorded the use of profits (repayment of losses), the balance in the “Profit to be distributed” subaccount of account 84 shows the amount of retained earnings. This amount can be transferred to the appropriate subaccount:

DEBIT 84 subaccount “Profit subject to distribution” CREDIT 84 subaccount “Retained earnings”
- reflects the amount of retained earnings of the organization.

At the end of last year, the net profit of JSC Aktiv amounted to 70,000 rubles. In the analytical accounting for account 84, the accountant of Aktiv JSC provided the following subaccounts:

84-1 “Profit subject to distribution”;
- 84-2 “Retained earnings”.

DEBIT 99 CREDIT 84-1 - 70,000 rub. - net profit is reflected.

In February of this year, at the general meeting of shareholders, it was decided to use net profit as follows:

5% should be used to replenish reserve capital;
- 50% will be used to pay dividends to shareholders.

Based on this decision, the Aktiva accountant reflected the use of profit with the following entries:

DEBIT 84-1 CREDIT 82
- 3500 rub. (RUB 70,000 × 5%) - funds were allocated to replenish reserve capital;

DEBIT 84-1 CREDIT 75 - 35,000 rub. (RUB 70,000 × 50%) - funds were allocated to pay dividends to shareholders;

DEBIT 84-1 CREDIT 84-2 - 31,500 rub. (70,000 - 3500 - 35,000) - reflects the amount of retained earnings.

"Special Purpose Funds"

The current Chart of Accounts (approved by order of the Ministry of Finance of Russia dated October 31, 2000 No. 94n) does not provide for separate subaccounts for the creation of special-purpose funds (in the previous Chart of Accounts of 1992, account 88 “Retained earnings (uncovered loss)” provided for subaccounts “Consumption funds " and "Accumulation funds").

Sometimes the owners of an organization decide to pay bonuses to employees and financial assistance from net profits. Some even decide to create so-called consumption and accumulation funds, charitable foundations.

The laws on JSC and LLC do not provide for any payments from profits to anyone other than the owners. And account 84 “Retained earnings (uncovered loss)” is the account of the owners, and only they have the right to receive dividends.

And the Russian Ministry of Finance has repeatedly indicated that account 84 is not intended to reflect all kinds of social and charitable expenses, payments of material assistance and bonuses (see, for example, letters of the Russian Ministry of Finance dated June 19, 2008 No. 07-05-06/138, dated 19 December 2008 No. 07-05-06/260).

Expenses of an organization are recognized as a decrease in economic benefits as a result of the disposal of assets (cash, other property) and (or) the emergence of liabilities, leading to a decrease in the capital of this organization, with the exception of a decrease in contributions by decision of participants (owners of property) (clause 2 of PBU 10/99) .

Organizational expenses for sporting events, recreation, entertainment, cultural and educational events and other similar events, as well as transfers of funds to charity, are other expenses and should be accounted for in account 91 “Other income and expenses.”

In other words, any disposal of assets (except for dividends) is an expense of the current period (clause 2 of PBU 10/99). They have nothing to do with the organization's net profit. Such expenses cannot be debited to account 84; this is contrary to current accounting regulations.

So, if the owners want the company to buy an operating system from profits or spend money on charity, the accountant needs to record such costs in the usual way as assets or expenses. When purchasing fixed assets, organizations simply spend funds from the current account and one asset (money) is exchanged for another (fixed asset).

And the organization’s expenses for paying bonuses to employees, transferring funds to charity, and the like are always recognized as expenses of the organization and are reflected in the financial results statement. Account 84 is not used in postings.

Acquisition of fixed assets

Based on the Instructions for using the Chart of Accounts, you can organize accounting for sources of capital investments, and in this case account 84 will be used. This must be provided for in the accounting policy.

The use of profit for the acquisition of fixed assets is reflected in accounting by the following entries:

DEBIT 01 “Fixed assets” CREDIT 08 “Investments in non-current assets”
- the object is included in fixed assets;

Simultaneously

DEBIT 84 “Retained earnings (uncovered loss)” CREDIT 84“Retained earnings (uncovered loss)”, subaccount “Retained earnings aimed at purchasing fixed assets”

Net profit is used to purchase property.

The accounting policy of JSC Aktiv (general taxation system) defines the source of financing for capital investments - retained earnings. The Aktiva accountant opened a subaccount for account 84, “Retained earnings aimed at purchasing fixed assets.”

In April of the current year, fixed assets worth RUB 53,100 were purchased. (including VAT - 8100 rub.).

The accountant made the following entries:

DEBIT 08 CREDIT 60 - 45,000 rub. - acquired fixed assets;

DEBIT 19-1 CREDIT 60 - 8100 rub. - “input” VAT is taken into account;

DEBIT 01 CREDIT 08 - 45,000 rub. - the acquired fixed asset is accepted for accounting;

DEBIT 68 CREDIT 19-1 - 8100 rub. - “input” VAT is accepted for deduction;

DEBIT 84-2 CREDIT 84-3 - 45,000 rub. - the source of financing is reflected (the use of net profit for the acquisition of fixed assets).

Charity

In the Recommendations for audit organizations, individual auditors, auditors on conducting an audit of the annual financial statements of organizations for 2014 (attachment to letter dated February 6, 2015 No. 07-04-06/5027), the Ministry of Finance of the Russian Federation once again warns against isolation in accounting for expenses account of funds formed from net profit. Such expenses are reflected in the general manner. And funds should be accounted for in off-balance sheet accounts.

For the current year, the LLC has established a charity financing fund in the amount of 100,000 rubles. It is reflected in off-balance sheet account 012. In the reporting year, 80,000 rubles were spent on charity. At the end of the year, the LLC received a loss that exceeded the profit of previous years. The accountant will make the entries.

In this article we will look at what retained earnings are and how to properly manage them.

You will learn:

What is retained earnings on a company's balance sheet and where does it go?
How is retained earnings reflected on the balance sheet?
How to determine the amount of retained earnings.
What does an organization's retained earnings belong to?
Who has the right to the retained earnings of the enterprise.
What can the company's retained earnings be used for?
Where to put retained earnings from previous years.
How to analyze retained earnings.

What is retained earnings

retained earnings is part of the company's capital. It is reflected in section III "Capital and reserves" of the balance sheet. Capital is precisely the difference between the assets and liabilities of an organization. However, in the case when the company’s assets and liabilities are associated with real objects, capital acts as an abstract financial value that reflects the sources from which the company exists: from the authorized, reserve or additional capital of retained earnings.

For example, in the Chart of Accounts for accounting of financial and economic activities of organizations, approved by Order of the Ministry of Finance of Russia dated October 31, 2000 N 94n, profit is called the source of financial support for the production development of the company. Therefore, if there is a component in the company's capital in the form of retained earnings, it represents a good sign, speaking about the excess of income compared to expenses.

The credit of account 84 shows the amount of net profit that was received for the entire period of the company’s activities, and not just according to data for the last year. This value is the final result of the organization’s activities over the entire period of its existence. The owners have the right to use this accumulated profit at their discretion.

Based on the credit balance of account 84, it can be determined whether the organization’s profit was not used to withdraw funds from circulation.

How to determine the amount of retained earnings

The calculation of retained earnings is quite simple. For him, it is enough to substitute the values into one of the formulas indicated below, while knowing the amount of net profit/loss of the organization.

To calculate retained earnings, a company needs to know and take into account the following indicators: retained earnings at the beginning of the period under review, net profit (Net Income or Net Profit) or net loss (Net Loss) and the amount of dividends paid.

After collecting all the necessary data for the calculations, the obtained values must be substituted into the following formulas:

RE1 = RE0 + Net Income – Dividends, where RE1/RE0 is retained earnings at the end/beginning of a given period;

Net Income – net profit;

Dividends – dividends that have been paid to shareholders.

If a company did not receive a net profit for the current period, but faced a net loss, then the following calculation formula is used:

RE1 = RE0 – Net Loss – Dividends, where, as has already become clear, Net Loss is a net loss.

Who has the right to use retained earnings

The distribution of the company's profits, the decision on what expenses need to be made at its expense, can only be carried out by the owners of the organizations - participants or shareholders. Consequently, the accounting of the decisions of shareholders (participants) will depend on the instructions recorded in the minutes of the general meeting given to the company’s management. But many continue to encounter certain mistakes when making this decision. It is the accountant who is able to suggest the right decision to the participants and shareholders of the company.

What can the organization's retained earnings of the current year be used for?

The procedure for distribution of profits is regulated by the Laws on JSCs and LLCs. In the case of accounting, it is said about what undistributed funds can be spent on only in the annotation to account 84 in the Chart of Accounts. There are no longer any references in accounting to possible uses of retained earnings.

Therefore, the use of retained earnings is possible for the following tasks:

1) Reserve fund

The law provides for the obligation of a joint-stock company to form a reserve fund from its net profit. The size of the reserve fund must be at least 5% of the authorized capital of the company. The fund's funds are used to cover losses and repurchase public shares and repay its own bonds.

Unlike joint-stock companies, limited liability companies have the opportunity to voluntarily create a reserve fund. In this case, the size of the reserve, the amount of annual contributions to it and the purposes for using the funds are indicated by the charter of the company.

The reserve fund is created by posting:

Debit 84 “Retained earnings (uncovered loss)” Credit 82 “Reserve capital”

Like retained earnings, it is also reflected in the balance sheet in Section II “Capital and Reserves” on page. Consequently, there is an actual transfer of part of the net profit to another item of capital. However, at the same time, the structure of the balance sheet is improved, because the owners are actually prohibited from withdrawing funds from the company’s turnover to the amount of the formed fund. The reserve fund can be considered a certain financial safety net in the activities of the organization.

Saving in two funds

Vyacheslav Tishin,

General Director of the Tridit company, Samara

Every month we put 5-15% of the profit (depending on the current situation in the company) into two funds. The first fund is a savings fund, intended for important, unexpected expenses. Including the funds necessary to replace failed equipment or components. And the second is an investment fund. Designed for the planned renewal of our assets. We also use it when opening and launching new business lines.

2) Dividends

The profit that remains after the formation of the reserve fund can be used by the owners to pay dividends. It is necessary to take into account that this is the most typical and common option for spending profit funds. When dividends are calculated, retained earnings decrease. When dividends are paid, the organization's assets decrease. The accrual of dividends in accounting is reflected by the following entry:

Debit 84 “Retained earnings (uncovered loss)” Credit 75 “Settlements with founders”

You can reflect the payment of dividends in cash using the following entry.

Debit 75 “Settlements with founders” Credit 51 “Settlement accounts”

When preliminary withdrawing money from a current account for cash withdrawal, the following posting will be used.

Debit 75 "Settlements with founders" Credit 50 "Cash"

Payment of dividends is possible not only in money, but also in property, since this is not prohibited by law. The Federal Tax Service of Russia believes that when transferring property to pay dividends, VAT is required. It should also be taken into account that according to some court decisions, arbitrators recognize that the transfer of property through the payment of dividends does not constitute a sale and is not recognized as subject to VAT.

Therefore, if the company’s VAT base does not include the value of the property transferred as dividend payment, then most likely it will need to defend its position in court. However, is it necessary to act this way?

Since the company decides to pay dividends in cash, but does not have them, it must first sell the property, including VAT on its sale, and only then transfer funds to shareholders. Consequently, if there are no funds, in any case, VAT will have to be paid, and only then will it be possible to settle accounts with the owners.

If the dividends are goods or fixed assets that are not subject to VAT, VAT is not required.

The transfer of property to pay off the debt on payment of dividends is reflected in accounting in the following way:

1) upon transfer of goods or finished products:

2) when transferring a fixed asset:

Account correspondence


75 (sub-account "Settlements with founders for payment of dividends")	91-1 (sub-account "Other income")	The transfer of fixed assets for the payment of dividends is reflected
		VAT reflected
	01 (sub-account "Fixed asset in operation")	The initial cost of the fixed asset (FA) is reflected
	01 (sub-account "Retirement of fixed assets")	The amount of accrued depreciation is written off
91-2 (sub-account "Other expenses")	01 (sub-account "Retirement of fixed assets")	The residual value of fixed assets is recognized as expenses

Company owners sometimes decide to use payments to provide bonuses to employees, purchase fixed assets, and provide financial assistance. Some also decide to organize consumption and savings funds. Can such decisions be considered correct?

Let's first look at the nuances of spending at the expense of profit. Firstly, the current Laws on JSCs and LLCs do not establish any payments from profits to anyone other than the owners. Secondly, the Ministry of Finance of the Russian Federation has repeatedly expressed the following position: account 84 is not intended to reflect all kinds of charitable and social expenses, payments of material assistance, and bonuses.

The company's expenses on sporting events, entertainment, recreation, cultural and educational events and other similar events, as well as the organization's transfer of funds related to charitable activities from the position of the financial department, constitute other expenses that must be accounted for in account 91 "Other income and expenses" . Only the payment of dividends does not represent an expense of the organization; any other disposal of assets is an expense of the current period.

Therefore, material assistance, various bonuses, and charity expenses can lead to an impact on the company’s net profit, but only during the period of these expenses. However, they have no relation to last year’s net profit. Consequently, all kinds of payments from net profit are considered unlawful - the only exception being dividends.

If we talk about the formation of a consumption fund at the expense of net profit, it is only an echo of Soviet accounting practices. Then, money stored in the bank separately from the organization’s funds was transferred to production development funds. They were used to purchase fixed assets. Today, such transfers of money for the development of production are no longer made.

The purchase of fixed assets of an enterprise is now carried out using current account funds with the change of one asset (money) to another (fixed asset). In this case, account 84 is not used in the postings. Consequently, if the owners decide to allocate profit for the development of production with the accountant’s entry in the accounting Debit 84, subaccount “Profit for distribution”, Credit 84 “Reserved profit”, this will not affect the final balance on the credit of account 84.

By and large, this posting indicates that this year the owners refused to receive dividends without withdrawing money from circulation. But thanks to this decision, the company had the opportunity to improve the balance sheet structure, ensuring a more stable financial position. There is no change in the final balance on the credit of account 84 - therefore, no obstacles are created for the owners in the future distribution of profits, which are reflected as undistributed in the balance sheet of the enterprise.

We spend profits on product promotion and charity

Sergey Perimbaev,

General Director of the Russian Fastener company, Ryazan

Distribution of profits after tax deductions is possible under 2 headings – development and dividends. My company is a growing organism, so we use additional funds to develop our organization. We regularly introduce new products to the market with many events aimed at advertising and promotion of your product. Therefore, thanks to profits, the company is able to move forward.

We also strive to care for others. As part of the charity program, we help those in need. And last but not least are the interests of the company owner. If necessary, part of the profit can be “distributed” among business owners. But for now I’m trying to act for the future, without resorting to such steps.

Where to put retained earnings from previous years

Another question that is relevant for owners and accountants is whether it is possible to distribute profits from previous years as dividends? The answer in this case will be positive, there is such a possibility.

Since neither civil nor tax legislation establishes restrictions on the payment of dividends from the organization’s profits for previous years. Consequently, when the company “accumulates” the profits of the previous year, it can be directed to the decision of the general meeting of shareholders for dividend payments.

The regulatory authorities do not object to this decision either. The conclusion of the Supreme Arbitration Court of the Russian Federation states that the company’s net profit and retained earnings are identical in economic nature. Consequently, there are no obstacles for owners in this regard - to use not only the net profit of the reporting year, but also retained earnings for previous years to pay dividends.

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How to analyze retained earnings

It is advisable to begin the analysis of retained earnings by studying its composition and the dynamics of changes in individual items. It is necessary to include in the retained earnings the items of form No. 2 “Profit and Loss Statement”: gross profit, profit from the sale of products (works, services), other income (expenses), profit before tax. They can be calculated using the formulas:

Gross profit = Revenue – Cost;

Sales Profit = Gross Profit – Administrative Expenses – Selling Expenses.

In a situation where the profit from sales and gross profit are equal, the accounting policy reflects the direct write-off of commercial and administrative costs to cost.

Profit before tax = Profit from sale + Other expenses + Other income.

The balance of account 91 is reflected by the difference between other income and expenses. If there is a negative balance, a loss from other activities is determined.

Retained earnings = Earnings before taxes - Income taxes and similar payments - Deferred tax liabilities + Deferred tax assets.

For each listed item, its share in profit before tax is taken into account, and in the case of a loss, in revenue. Based on the calculated values, the factors that form the financial result can be determined, with the identification of trends in changes, as well as their reasons, for which an economic justification should be given, with the determination of the level of tax burden.

Expenses with a significant share, which are increasing annually, deserve special attention. For example, to analyze losses from the payment of fines in case of violation of contractual obligations, the reasons why the obligations under each contract were not fulfilled are identified; when writing off overdue receivables as losses, it is necessary to identify the reasons why the settlement and payment discipline for each debtor was not fulfilled. In this case, the quantitative influence of these factors on the change in profit before tax is determined:

where Pdz is the change in profit due to changes in overdue accounts receivable;

365 – financial reporting period;

3 – limitation period for overdue debt (3 years);

PDZ – amount of overdue receivables, thousand rubles;

RDZ – profitability of using accounts receivable;

POd – actual receivables turnover period, days.

The formation of an organization's retained earnings occurs primarily from income received through ordinary activities. Taking this into account, it is necessary to analyze in detail the profit received by the organization from the sale of products (services, works) in general for the organization and certain types of goods in particular.

Information about the author and company

Vyacheslav Tishin, General Director of Tridit company, Samara. in 2002 he graduated from the Faculty of Informatics of Samara State Aerospace University. Academician S.P. Queen. Completed the MBA-Start program. Work experience in the IT field (including the web industry) – 14 years.

Sergey Perimbaev, General Director of the Russian Fastener company, Ryazan. Graduated from the Ryazan Higher Military Automotive Engineering School with a degree in automobiles and automotive industry, the Ryazan Institute of Law and Economics with a degree in civil and international private law, the Moscow Academy of Economics and Law with a degree in jurisprudence, and completed training in the presidential management training program for organizations of the national economy of the Russian Federation (specialty - “marketing”). He worked as commercial director of the construction company "MZhK".

USN | DON'T MAKE MISTAKES

Tax consultant, auditor, professional seminar lecturer

What can you spend retained earnings on?
and how to reflect this in accounting

At the end of the financial year, many companies need to decide how to spend the net profit received during the reporting period. There are several distribution options, and accordingly, the accounting reflection for each will be different.

Neither the head of the organization, nor especially the accountant, has the right to make a decision on the distribution of net profit. Such a decision can be made exclusively by the general meeting of participants (shareholders). For this reason, it is impossible to automatically summarize the turnover in account 84 “Retained earnings (uncovered loss)” just to reflect the final figure in the balance sheet, since it is necessary to distinguish:

retained earnings excluding the decision to pay dividends. This value is shown in the “Income Statement” as net profit and in the balance sheet for the reporting year in the “Capital and Reserves” section;
retained earnings, taking into account the decision of the founders (participants) to pay dividends, are shown in the organization’s balance sheet in the “Capital and Reserves” section after the meeting of the founders, because this profit can be used in subsequent years to pay dividends to the owners of the organization.

At the same time, we would like to draw your attention to the fact that the distribution of profit based on the results of the year falls into the category of events after the reporting date. And also note that in the reporting period for which the organization must distribute profit, in accounting, both synthetic and analytical, it is shown as retained earnings in the corresponding subaccount of account 84. And already upon the occurrence of an event after the reporting date, i.e. i.e. in the period following the reporting period, in the general order, records are given that reflect this event in accordance with paragraphs. 3, 5, 10 PBU 7/98, i.e. the distribution of this profit is reflected.

GOOD TO KNOW

Profit is determined based on accounting data, not tax data. And all “simplified” people can distribute it, regardless of the object of taxation.

In practice, this also happens when the owners at their meeting decide not to distribute the profit received in the reporting year. In this case, in accounting, a change occurs in the corresponding subaccount of account 84, because retained earnings are formed taking into account the decision of the founders.

Thus, data on account 84 regarding the distribution of profit is formed in the year following the reporting one, taking into account the decision made in the same year on the distribution of profit received based on the results of the previous year, since this is already an event after the reporting date. Well, what if the owners of the company, based on the results of the organization’s activities, decided to direct all the net profit received last year to the development of the organization’s production? In this case, the balance in account 84 remains unchanged, which means that the indicator in line 1370 “Capital and reserves” does not change either.

All retained earnings received can be used to purchase new fixed assets, or the designated amount of retained earnings can be used to create an accumulation fund. Yes, that's not bad. An organization's accountant can reflect the creation of such funds in analytical accounting using the corresponding sub-accounts opened for account 84. In this case, the total value reflected in account 84 will remain unchanged. Note that expenses incurred by the organization aimed at developing production are recognized in the reporting period in which they occurred. In addition, the acquisition of fixed assets by an organization leads to a redistribution of amounts within the balance sheet asset, because the organization in this case decreases the amount of cash, which means the balance on line 1250 of the balance sheet will decrease, but then a fixed asset will appear and the balance on line 1210 of the balance sheet will increase by the same amount. As a result, both the balance sheet asset and capital will remain unchanged.

This raises quite reasonable questions: what are expenses at the expense of profit? For what purposes can it be spent?

These questions can be answered this way: profit is expended only when its value on the balance sheet actually decreases. This happens, for example, when dividends are paid to the owners of the organization at the expense of profits, a bonus can be paid at the expense of profits or material assistance can be provided to employees, and a reserve fund can be created at the expense of retained earnings, the size of the authorized capital can be increased, etc. Such situations have an impact and on reporting indicators.

We pay dividends

In practice, one of the most common ways of distributing profits is the payment of dividends, so let's look at this aspect in more detail. Due to the fact that the outflow of assets in connection with the payment of dividends is not recognized as an expense of the organization for tax purposes, dividends are accrued to participants directly from retained earnings, and therefore from the capital of the organization. In accounting, the following accounting entry is given: Debit account 84 “Retained earnings” Credit 75 “Settlements with founders”.

At the same time, dividends accrued to participants can be paid not only in cash, but also in property. In any case, there will also be a decrease in the corresponding asset of the organization.

So, when paying dividends in cash, the following entry will be given in accounting:

We create funds

Let us focus on one more method of distributing profits according to the decision of the founders. This is the creation by an organization of certain funds. Let's name the main ones. Let us say right away that the creation of a reserve fund is the prerogative of joint stock companies. The mandatory creation of this fund is indicated in paragraph 1 of Art. 35 of the Law of December 26, 1995 No. 208-FZ “On Joint-Stock Companies”. The law also provides for the size of this fund, which, naturally, must be determined by the company itself, but it must be no less than 5% of the authorized capital, and the amount of annual contributions to this fund should not be less than 5% of the net profit.

As for limited liability companies, in accordance with paragraph 1 of Art. 30 of the Law of 02/08/1998 No. 14-FZ “On Limited Liability Companies” can create a reserve fund in the manner established by the company’s charter and in the amount determined by the organization’s accounting policy.

The reserve fund is created in accounting by posting: Debit account 84 “Retained earnings” Credit account 82 “Reserve capital” and is reflected in the balance sheet on line 1370 “Capital and reserves”.

Moreover, all organizations, regardless of their form of ownership, can create other funds designated by the charter of the company. For example, you can create both a dividend fund and a consumption fund to pay bonuses to employees and provide them with financial assistance from retained earnings. It would be a good idea to create a fund to pay off losses from previous years and other funds, although these and other similar funds are not mentioned either in the Law on JSC, or in the Law on LLC, or in the current accounting regulations.

GOOD TO KNOW

The creation of various funds from retained earnings is not mandatory. However, a company can create such if they are established by the charter of the LLC and their size is determined by the accounting policy of the organization. At the same time, we believe that the creation of funds helps maintain order in the distribution and use of the organization’s profits.

Example 1.

Vympel LLC uses the simplified tax system. Based on the results of the organization’s activities in 2013, a loss was received in the amount of 120,000 rubles. In 2014, the company made a profit of 150,000 rubles.

In May 2015, a general meeting of participants was held, at which it was decided to distribute profits in the following order: 120,000 rubles. It was decided to use it to create a reserve fund, which will be used to repay losses from previous years. At the same time, the accounting policy of the organization also determines the size of the reserve fund at 120,000 rubles. Therefore, at the meeting of the founders, it was decided not to accrue or pay dividends to the owners for 2014, but to pay the remaining profit in the amount of 30,000 rubles. do not distribute.

The decision of the founders, i.e., an event after the reporting date, was reflected by the company’s accountant in the following accounting entries for 2015:

Debit	Credit	Amount (rub.)	Operation
81.1 “Retained earnings”	82 "Reserve Fund"	120 000	A reserve fund of the enterprise was created at the expense of profits
82 "Reserve Fund"	84.3 “Uncovered loss”	120 000	Repayment of losses from previous years using the reserve fund
84.1 "Retained earnings"	84.2 “Retained earnings”
The organization's chart of accounts defines: Balance sheet account 84.1 “Retained earnings” without taking into account the decision to pay dividends Balance sheet account 84.2 “Retained earnings”, taking into account the decision to pay dividends Balance sheet account 84.3 “Uncovered loss”

As we can see, from the point of view of financial reporting, the creation of a reserve fund leads to a redistribution of amounts within the “Capital and Reserves” section. As a result of such a redistribution of amounts, the structure of the organization’s balance sheet improves, because only retained earnings can be distributed for dividends, including next year, and the reserve fund is inviolable. Moreover, covering losses from the reserve fund makes it possible to show a “break-even” balance, which looks more attractive to investors.

Let us note that the owners’ decision to repay losses from the reserve fund must be disclosed in the explanations to the statements in accordance with clause 10 of PBU 7/98.

IMPORTANT IN WORK

It is unlawful to write off to the debit of account 84 such current expenses of the organization as expenses for charity, the purchase of gifts and other events of a cultural, educational and sports nature.

Example 2.

Signal LLC applies the simplified tax system. Based on the results of work for 2014, a net profit of 800,000 rubles was received. In addition, the organization, as of January 1, 2014, had retained earnings from previous years, taking into account the decision to pay dividends in the amount of RUB 1,200,000. In March 2015, a meeting of shareholders was held, at which a decision was made to distribute the total amount of retained earnings in the amount of RUB 2,000,000. (RUB 1,200,000 + RUB 800,000) in the following order: to the enterprise development fund - 20%, for payment of dividends - 50%. The remaining profit will be used to create a consumption fund, 20% of which will be used to pay bonuses to employees based on the results of work in 2014, and 10% to pay financial assistance to employees as needed.

At the same time, the amount of the authorized capital of the organization is 200,000 rubles, and the value of net assets is 1,600,000 rubles.

The credit balance at the beginning of 2014 on account 84.2 amounted to RUB 1,200,000.

In 2014, during the balance sheet reformation, the following entry was made in accounting:

Debit	Credit	Amount (rub.)	Operation
99	84.1	800 000	“Retained earnings” without the decision of the founders on payment of dividends
In March 2015, in accordance with the decision of the founders following the results of the meeting, the following accounting entries were given:
84.2	81.1	1 200 000	Profit from previous years accepted for distribution
84.1	84.4	400,000 rub. = (RUB 2,000,000 x 20%)	Sent to the enterprise development fund
84.1	75, 70, 69	1,000,000 rub. = (RUB 2,000,000 x 50%)	Dividends accrued to founders*
84.1	84.5	600,000 rub. = (RUB 2,000,000 x 30%)	Sent to the consumption fund
84.5	70, 69	120,000 rub. = (RUB 600,000 x 20%)	Bonus payments to the organization's employees were accrued from the consumption fund*
* For simplicity of the example, the accrual is shown in total, without individual distribution and without separate accrual of insurance premiums. Personal income tax deductions from accrued amounts of dividends and bonuses are also not shown. When calculating bonuses to employees of an organization at the expense of profits, the following documents must be completed: - minutes of the general meeting of founders (participants); - decision of the general meeting of founders (participants) on the expenditure of the consumption fund; - payment of the bonus is made in accordance with the order of the head of the organization.

As a result, after the distribution of the entire amount of retained earnings in 2015, we have:

credit balance on account 84.3 – 400,000 rubles. (enterprise development fund);
credit balance on the account 84.5 – 480,000 rubles. (consumption fund).

As we can see, in the presented example, based on the results of 2013, the available retained earnings were not distributed, because in 2014 the founders held a meeting at which it was decided not to distribute the profits received in 2013. In 2015, a meeting of the founders also took place, and all retained profits available in the organization for this period were distributed. At the same time, the organization had such an opportunity, since the amount of net assets significantly exceeded the amount of the authorized capital, which is important for this.

And one more important nuance. For many years, the issue of the possibility of using retained earnings from previous years to pay dividends has remained controversial, since neither tax nor civil legislation contains restrictions on the payment of dividends from retained earnings of previous years.

Currently, it is possible to enlist tax legislation on this issue. So, in accordance with Art. 43 of the Tax Code of the Russian Federation, retained earnings from previous years can be spent on paying dividends, because “a dividend is any income received by a shareholder (participant) from an organization when distributing profits remaining after taxation.” This position is also consistent with letters from the Ministry of Finance of the Russian Federation dated October 5, 2011 No. ED-4-3/16389, dated April 6, 2010 No. 03-03-06/1/235. In addition, such payments must also be provided for in the company’s charter.

GOOD TO KNOW

Funds can be formed from retained earnings only in accounting. The creation and use of funds under the simplified tax system does not in any way affect tax accounting.

Example 3.

Orion LLC uses the simplified tax system. The general meeting of owners, which took place in April 2015, decided to use part of the profit of the reporting year (RUB 150,000) to increase the authorized capital of the organization.

Based on the decision made, changes must be made to the constituent documents. After registering these changes in the prescribed manner, the corresponding entry is given in the accounting records: Debit 84.1 Credit 80 – 150,000 rub.

FROM THE EDITOR

Retained earnings is an amount indicating the amount of capital accumulated by an organization for the reporting year. It represents the final financial result of its activities minus income tax. In addition, this value is a factor in the growth of the enterprise, which is achieved not only by increasing the organization’s income, but also by saving money spent on generating income.

Currently, along with the concept of “retained earnings”, both in accounting and reporting, the concept of “net profit” is also used. Let us note that these concepts are often identified. However, they are still different categories. Let's try to figure this out.

Thus, retained earnings are a category inextricably linked with the organization’s own sources of funds – the capital of the organization. It represents funds invested in the activities of the organization, i.e., the profit remaining at the disposal of the organization from the beginning of its activities minus payments to owners, expenses for the formation of a reserve fund (if one is formed) and other payments made from net profit in accordance with with the legislation of the Russian Federation.

Retained earnings (RE) is a common accounting concept that many businesses encounter. This term stands for funds received through the business activities of a company and available to it after paying tax deductions, dividends, fines, etc. Simply put, all mandatory payments.

An alternative name for retained earnings is retained surplus. 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 the total life 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 may be the same.

Retained earnings in the balance sheet relate to the passive part of funds. By default, it is believed that it should be distributed among the owners and used to optimize the company’s business model. Until this point, such profit can only be called the company’s debt to its owners. Refers to long-term sources of financing, therefore the goal of the company’s financial strategy should be its mandatory accumulation.

What to do with retained earnings

There are several main ways to refer an NP. Among them:

payment of dividends to owners/shareholders;
compensation for earlier losses;
accumulation of reserve fund funds;
other goals agreed upon by managers.

IMPORTANT! Regarding the last point, it is worth making a small clarification. In this case, managers do not mean nominal officials, but business owners. As a rule, they resolve such issues during the final annual meeting, at which the corresponding minutes are drawn up.

What determines the size of retained earnings?

The indicator may differ in different reporting periods. It is influenced by such things as:

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

Retained earnings. Check

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

The account contains information about the denomination and changes in the amount for the reporting year. At the end of the year, the amount is credited to account 84, while the loss is written off as a debit. The main task of this account is to store information about the purposes for which the funds were used.

An uncovered loss is sometimes called a deficit profit. The loss can be fully or partially compensated using reserve capital funds. 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 parentheses).

IMPORTANT! At the request of the accounting department, additional lines – 1371 and 1372 – can be entered in the balance sheet to differentiate the figures for the reporting and previous years.

Calculation of retained earnings. Detailed formula

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

HPk = HPn + ChP – D

PE – net profit minus income tax;

Note: The standard reporting period is one year.

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

NPk = NPn – CHU – D

HPc – surplus of funds at the end of the reporting period;
HPn – the same indicator at the beginning of the period;
PL – net loss;
D – dividends distributed for the reporting period, based on the RR of the previous periods.

The remaining indicators are similar to the previous formula.

Keep your balance. Rational allocation of NP funds

It is believed that scaling the business should be a priority goal when determining where retained earnings will go. Proper reinvestment can increase the overall profitability of a business and the stock market value of its shares. Which, in turn, will be a major advantage for investors. Banal payment of dividends is good only in the short term, while 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 not desirable 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 directorate and the management department of the enterprise regarding where to direct retained earnings.

If management is opposed to allocating funds to pay dividends and 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, it is important for financial management to adhere to the so-called golden mean, providing investors with the profitability they expect, and at the same time directing funds to 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 depends.

Retained earnings can be used to reduce costs. How to correctly reflect it in accounting - read the article.

Question: An organization wants to reduce costs by using retained earnings. How to write it off, reducing costs? What wiring needs to be done?

Answer: Net profit can be distributed only by decision of the owners of the organization. Directions for distribution of net profit can be mandatory or voluntary. Mandatory contributions are made only by joint stock companies. They must create a reserve fund from their net profit. By decision of the founders, the organization can use net profit to pay dividends and increase the authorized capital.

In accounting, the net profit received at the end of the year is reflected in the credit of account 84 “Retained earnings (uncovered loss).”

If the founders want to use net profit for other purposes, such expenses cannot be reflected using account 84. These will be other expenses that also affect the financial result of the organization. If the founders want to use net profit to cover expenses, such expenses must be reflected in the debit of account 91-2.

Rationale

How to use your net profit

Documenting

In an LLC, the decision on the distribution of net profit is documented in the minutes of the general meeting of participants (clause 1, article 28, clause 6, article 37 of the Law of February 8, 1998 No. 14-FZ). There are no mandatory requirements for the minutes of the general meeting of LLC participants in the legislation. But there are details that are better to indicate. This is the number and date of the minutes, place and date of the meeting, agenda items, signatures of participants.

An example of drawing up the minutes of a general meeting of LLC participants. The decision to spend net profit to pay dividends

The charter of LLC "Trading Company "Hermes"" stipulates that the organization pays dividends quarterly. At the end of the first quarter of 2014, the net profit of Hermes amounted to 50,000 rubles. At the general meeting of participants, which took place on April 15, 2014, it was decided to use this entire amount to pay dividends. The decision was made unanimously. Based on the results, minutes of the general meeting of participants were drawn up.

In a joint stock company, minutes of the general meeting of shareholders are drawn up. It differs from the minutes of the general meeting of LLC participants in that it is drawn up in two copies and has mandatory details. They are listed in paragraph 2 of Article 63 of the Law of December 26, 1995 No. 208-FZ and paragraph 4.29 of the Regulations approved by order of the Federal Financial Markets Service of Russia dated February 2, 2012 No. 12-6/pz-n.

In companies created by a single founder, minutes of general meetings are not drawn up (clause 3 of Article 47 of the Law of December 26, 1995 No. 208-FZ). The sole founder determines the directions for spending net profit by his written decision.

Distribution directions

The directions for distribution of net profit can be mandatory and voluntary (i.e., by decision of the founders).

Mandatory contributions are made only by joint stock companies. Using net profit, they must create a reserve fund (capital). Every year, at least 5 percent of net profit must be allocated to the reserve fund (capital). Contributions may be terminated when the reserve fund (capital) reaches the amount provided for by the charter of the joint-stock company. The minimum size of the reserve fund (capital) is 5 percent of the authorized capital. This is stated in paragraph 1 of Article 35 of the Law of December 26, 1995 No. 208-FZ.

An LLC can also create a reserve fund (capital), but it is not obligated to do so. The size of the reserve fund (capital) and the procedure for its formation are determined by the company independently. This follows from the Law of February 8, 1998 No. 14-FZ.

By decision of the founders, the organization can direct its net profit:
– for the payment of dividends;
– to increase the authorized capital.

For more information on dividends, see:

How to reflect the accrual and payment of dividends in accounting and taxation.

For more information on increasing the authorized capital, see:

How to formalize and take into account an increase in the authorized capital at the expense of own property in an LLC;
How to formalize and take into account an increase in the authorized capital due to additional contributions of participants (contributions of third parties) to the LLC;
How to formalize and reflect in accounting and taxation an increase in the authorized capital due to additional placement of shares in a joint-stock company;
How to formalize and reflect in accounting and taxation an increase in the authorized capital by increasing the par value of shares (conversion) in a joint-stock company.

Accounting

In accounting, the net profit received at the end of the year is reflected in the credit of account 84 “Retained earnings (uncovered loss).” The organization organizes analytical accounting for this account independently. For example, using the subaccounts “Net profit”, “Net profit subject to distribution”, “Use of net profit”.

When forming reserve capital, make a note:

Debit 84 Credit 82
– net profit was used to form a reserve fund (capital) according to the standards approved by the charter.

Reflect the accrual of dividends (both annual and interim) using one of the following entries:

Debit 84 Credit 75-2
– dividends are accrued to the founder, who is not an employee of the organization;

Debit 84 Credit 70
– dividends are accrued to the founder, who is an employee of the organization.

If net profit is aimed at covering losses of previous years, make the following entry:

Debit 84 subaccount “Retained earnings of the reporting year” Credit 84 subaccount “Uncovered loss of previous years”
– net profit is used to repay losses of previous years.

The founders can use net profit to increase the authorized capital. For example, to increase the investment attractiveness of the organization. After the change in the size of the authorized capital has been registered, make an entry:

Debit 84 Credit 80
– reflects the increase in the authorized capital due to net profit.

If the founders want to use net profit for other purposes, for example, for charity or paying for travel for employees, such expenses cannot be reflected using account 84. These will be other expenses that also affect the financial result of the organization. Accordingly, such expenses must be reflected in the debit of account 91-2. Similar explanations are given in letters of the Ministry of Finance of Russia dated December 19, 2008 No. 07-05-06/260 and dated June 19, 2008 No. 07-05-06/138.

One more thing. Let’s say the organization decided to create special funds using net profit (for example, production development funds, consumption funds, etc.). To account for their movement, the accountant can maintain analytical accounting for account 84. And the costs themselves meet the definition of expense, which is given in PBU 10/99. This means that the score 91-2 must be used. The correctness of this approach is confirmed by the Ministry of Finance of Russia in the recommendations from the appendix to the letter of the Ministry of Finance of Russia dated February 6, 2015 No. 07-04-06/5027).