One of the characteristic features of a market economy is the competition of most enterprises among themselves.
When summing up the results of the work, the most important financial indicator is profit. Its positive dynamics, along with other economic indicators, testifies to the efficiency of the business entity.
Further development is influenced by the choice of ways to distribute profits, which remain in the hands of the owners of the enterprise.
Management decisions in this matter will determine the strategy and goals for at least the next year. Annual bonuses to employees, dividends, the size of the reserve fund - all this will depend on how the profit is distributed after payment of all mandatory payments.
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Undistributed (another name is accumulated) profit is the part of the profit remaining at the disposal of the enterprise after the payment of taxes, dividends, fines and other obligatory payments.
This concept closely intersects with. If the company has no deferred tax liabilities and no accrual of dividends was carried out during the year, then these figures in the annual statements are the same. However, retained earnings represent the resulting figure for the reporting year and for the entire period of existence of the company, and net income - only for the reporting period.
This term in accounting and economic understanding is interpreted in different ways. For an accountant, this is the final result of the work reflected in the statements on account 84. But it has not actually been distributed yet, since the decision on where to send retained earnings is made by the owners (shareholders) in the period from March 1 to June 30 of the next year. Therefore, in the economic sense, they consider the profit for the past year after this date, that is, when the accountant makes all the deductions according to the decision of the owners of the enterprise.
How it is formed and what is included in it
A positive or negative result from the sale of products, the provision of services is reflected in the active-passive account 90 "Sales". The debit of the account shows the full, and other costs. Loan reflects revenue. The final balance is transferred to account 99 “Profit and Loss”.
Postings are carried out:
- Dt90Kt99 - profit received;
- Dt99Kt90 - a loss has been received.
Operations of the enterprise, which are classified as operating and non-operating, are shown on account 91 “Other income and expenses”.
These include:
- Sale and lease of assets belonging to the enterprise;
- Markdown and revaluation of non-current assets;
- Operations with foreign currency;
- Investments in business shares of other companies;
- Liquidation and donation of property;
- Income and expenses from operations with securities.
postings are as follows:
- Dt91Kt99 - profit received;
- Dt99Kt91 - a loss has been received.
This procedure for writing off the totals for accounts 90 and 91 is called balance sheet reformation. Many economists understand this term as the direct distribution of accumulated profit from account 84.
Similarly, the balance is transferred to account 99 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).
Retained earnings increase when errors are found in accounting reports that led to an overestimation of expenses. And also in case of unclaimed dividends by shareholders, if more than three years have passed since their accrual. Accordingly, errors that created overestimation of income will reduce the accumulated profit. 
They are not always cash in the form of cash or on a current account (depreciation of fixed assets increases profits, but does not add money). This must be taken into account when conducting an economic analysis.
In the last days of the reporting year, the chief accountant conducts writing off the closing balance(profit or loss) from account 99 to account 84 "Retained earnings".
Wiring is done:
- Dt99Kt84 - when making a profit;
- Dt84Kt99 - upon receipt of a loss.
After that, account 99 is reset to zero and no operations are carried out on it until the beginning of the next year. Account 84 is active-passive. Before entering the total amount of accumulated profit in the reporting, the amount of income tax is deducted from it (subsequently it can be adjusted).
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Retained earnings and uncovered loss: common and differences
These terms are absolute indicators of the efficiency of the enterprise. There are no significant differences in accounting, except for the difference in debit and credit entries. As a rule (although not always), the loss is covered by the balance of profits of previous years, the reserve fund, authorized or additional capital. Profit in the reporting year, according to the decision of the owners, is distributed in a number of areas.
Retained earnings, which is part of the balance sheet liabilities, actually increases the equity capital of an economic entity. This states the effectiveness of the assets invested in production. A detailed analysis will show, due to which factors it was possible to achieve profit.
In the balance sheet (form No. 1), the amount of loss is reflected with a “-” sign and is taken in parentheses. If so, the causes must be carefully analyzed. This can be either a negative result of sales and a drop in the competitiveness of products, or a temporary phenomenon with large investments in production, which slowly pay off.
Procedure and calculation formula
For JSCs (joint stock companies) these are dividends to shareholders, and for LLCs (Limited Liability Companies) - payments to founders.
This data is taken from lines 1370 and 2400 . Interim payments during the year from future profits should be reflected in the order for the enterprise.
If this year profit received , That calculation formula will be the following:
NR for the year = NR for the beginning of the year + Pchist. – Double out, where
NP at the beginning year - retained earnings at the beginning of the year,
Pchist. - net income
double - dividends paid to shareholders.
If this year received a loss , That formula will change a bit:
NP for the year = NP for the beginning of the year - Dec. – Double, where
Ub. - loss for the current year.
The value of NPch.year can be negative if the loss for the current year is greater than the accumulated profit at the beginning of the year. Then this indicator will be called uncovered loss.
For enterprises of different forms of ownership, the formula may change, but the principle of calculation is the same.
Display in financial statements
Undistributed profit (or uncovered loss) is included in the capital and reserves of the enterprise and is displayed in the liabilities side of the balance sheet in line 1370. In annual accounting reports, the total amount is already shown taking into account preliminary decisions based on the results of activities. That is, minus the losses of previous years (if any), accrued dividends, deductions to the reserve fund and other items of expenditure. Until the final approval of the owners of the company, these figures may change.
Past reporting years
Possible two ways of accounting accumulated profit:
- accumulative,
- weather.
With the first method, the division of profit for the reporting year and previous years by opening separate sub-accounts to account 84 is not performed. It accumulates on an accrual basis from the beginning of the operation of the enterprise. If there is a loss, it is automatically covered by the existing profit of previous years. This is typical for small businesses.
The annual method of accounting is distinguished by the presence of separate sub-accounts for the synthetic accounting of accumulated profits in different periods.
Variants of accounts of the second order may be different, for example:
- account 84.1 - Retained earnings of the reporting year;
- account 84.3 - Retained earnings of past years.
In both cases, the amount received in past years is included in the calculation of the totals for the reporting year.
For detailed information you need data from the following sources:
- explanatory note - may be attached to the balance sheet (except for small enterprises);
- accounting entries on account 84;
- reports from previous years.
If errors are found in the calculation of profit or loss for previous years, they will be taken into account in the financial result for the reporting year.
This year
To reflect the profit for the current year in the accounting department, the company can open sub-accounts to account 84, for example: 
- 84.1 - Earned profit;
- 84.2 - Retained earnings;
- 84.3 - Used profit.
The received positive result of the current year will be reflected in the posting Dt84.1Kt84.2. Postings involving account 84.3 mean the use of profits for various purposes.
With any accounting options, the last posting for the reporting year in the General Ledger will be a write-off from account 99 to account 84. Interim dividends or payments (if any) have already been pre-calculated from this amount of accumulated profit.
The following transactions are made:
- Dt99Kt68 - tax calculation,
- Dt84Kt75 (or Kt70) - accrual of dividends (on account 70 - bonuses to employees).
Uncovered loss
To reflect the loss of the current year, it can be sub-account 84.4 opened - Received loss. If it is not covered by the profit of the past years, the owners of the enterprise decide to pay it off from other sources or leave it on the balance sheet. In this case, it is considered uncovered and the negative value is transferred to line 1370.
With the annual method of accounting, information on uncovered loss for the current year and past years posted to sub-accounts to account 84:
- 84.2 - Uncovered loss of the current year;
- 84.4 - Uncovered loss of previous years.
Checking procedure
Information on the movements of retained earnings (uncovered loss) throughout the year is reflected in the Statement of changes in equity (Form No. 3).
Some small businesses and non-profit organizations may not include this report in their annual reporting. It contains data for 3 years, including the reporting one.
What is negative retained earnings
This is synonymous with the “uncovered loss” result. Some economists use this term when the loss is not due to negative performance.
If errors of large amounts are found in the calculation of the cost, a loss can occur even for very profitable companies.
Spending directions
After the reformation of the balance sheet, the chief accountant distributes the accumulated profit according to the decision of the owners of the enterprise. He has no right to do this on his own.
Compared to other articles, it can be disposed of more freely, but within the framework of the company's charter and the law Typical wiring on various directions of spending profits will be as follows:
- Dt84Kt84 - covering the loss of past years. Also, this entry in the context of individual sub-accounts of account 84 (for example, 84.2 / 84.3) can reflect an investment in production through the acquisition of non-current assets;
- Dt84Kt82 - deductions to the reserve fund (creation or replenishment);
- Dt84Kt75 (80) - increase in authorized capital (for an LLC on a loan, account 75, and for 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 on account 75) from at least one of the owners. The same rule applies if the value of the net assets of the enterprise is less (or will become less after the planned distribution of profits) of its authorized capital and reserve fund, as well as in the case of. The same restrictions apply to the payment of dividends on shares.
For an LLC, the creation of a reserve fund is not necessary, but for a JSC, its size must be specified in the charter (at least 5% of the authorized capital). Enterprises of the LLC form can create various funds for spending profits (development, bonuses for employees, social sphere, charity). To reflect them in accounting, it is possible to open any sub-accounts to the necessary accounts.
For JSCs, the law provides for the possibility of creating a fund for corporatization of the company's employees. Cash from it is spent only on the purchase of securities from shareholders. In the future, employees of the enterprise can redeem free shares.
Direction of retained earnings into production(both in assets and liabilities), in fact, is an open self-financing. It is also called reinvestment or hoarding.
A feature of investing profits in the development of production is that the acquisition of property does not reduce the liability of the balance sheet. In this case, the asset increases. In fact, the profit will be spent, but this will not reduce the amount of equity capital. The amount of funds spent will be reflected in the sub-account of account 84. When the amount of accumulated profit ends (the balance of account 84 becomes debit), then it will become clear that further investments in production are made using working capital.
Sources of loss coverage
The resulting loss shows a decrease in the amount of equity capital in the liabilities side of the balance sheet. Since the other articles of Section 3 remain unchanged, allowed to write off the loss in various ways.
Transactions by sources of loss coverage:
- Dt82Kt84 - coverage at the expense of the reserve fund;
- Dt84Kt84 - coverage at the expense of the accumulated profit of previous years (posting in the context of individual sub-accounts);
- Dt83Kt84 - repayment at the expense of additional capital;
- Dt80Kt84 - a decrease in the authorized capital (it is equated to the amount of net assets) by the amount of the loss;
- Dt75Kt84 - repayment of the loss at the expense of the owners.
All participants in economic relations are interested in making a profit of the enterprise and its increase. It is the main source of net income for society, raising the standard of living of the population.
What is retained earnings is described in the following video lesson:
