Retained and distributed earnings (Tolshchin G.S.)

Article posted date: 09/20/2016

Let's consider options for organizing analytical accounting and reflecting in the financial statements data on account 84 "Retained earnings (uncovered loss)" based on the currently valid rules for its application, according to which the methodology for separate accounting of retained (net) and distributed earnings at the regulatory level, in our opinion, is not sufficiently defined.

The phrase “retained (net) profit” means net profit, including previous years, for which no decision has been made on its distribution. The chart of accounts does not contain recommendations for the application of specific subaccounts to account 84 “Retained earnings (uncovered loss)”; it is indicated that analytical accounting for this account is organized in such a way as to ensure the generation of information on the areas of use of funds. At the same time, in analytical accounting, funds of retained earnings used as financial support for the production development of the organization and other similar activities for the acquisition (creation) of new property and not yet used can be divided.

Instructions for using the Chart of Accounts provide for organizations the opportunity to clarify the content of the subaccounts given in this document, exclude and combine them, as well as introduce additional subaccounts.

Thus, organizations must independently determine the procedure for analytical accounting for account 84, which can be carried out by either introducing separate analytical items or opening separate sub-accounts to the specified account.

According to the Chart of Accounts, retained profit (loss) is formed from the net profit (loss) of the reporting year and is reflected in the accounting entry at the end of the reporting year in account 84 in correspondence with account 99 “Profits and losses”. The net profit (loss) indicator is formed in the income statement and is reflected in the statement of changes in equity. At the same time, the net profit of the reporting year participates in the formation of the retained earnings indicator in the “Capital and Reserves” section of the balance sheet. The balance sheet uses the concept not of net profit, but of retained earnings, the balances of which at reporting dates contain, in addition to net profit, other components. The value of the retained earnings indicator in the balance sheet at the end of the reporting year must correspond to the balance of the accounting account 84.

The concept of “net profit” is not defined by law, although this concept is mentioned in certain regulatory documents. For example, according to the Rules for the conduct of financial analysis by arbitration managers (approved by Decree of the Government of the Russian Federation of June 25, 2003 N 367), net profit (loss) is the net retained profit (loss) of the reporting period remaining after payment of income tax and other similar mandatory payments. Based on the above formulation, we can conclude that the concept of net profit applies only to the profit (loss) of the reporting period.

The regulatory legal acts regulating accounting in the Russian Federation also do not contain a separate definition of net profit; the concept of net profit follows from the content of the Instructions for the Application of the Chart of Accounts and from the form of the statement of financial results approved by the Ministry of Finance of Russia.

In our opinion, the net profit (loss) of an organization should be considered the financial result for the reporting period, obtained from all income minus expenses for this period, without taking into account transactions directly related to changes in capital. This formulation corresponds to the concept of “Profit or loss” under IAS 1.

The net profit of the reporting year, included in retained earnings in the balance sheet at the end of the reporting period, is subject to distribution by decision of the annual general meeting of shareholders or members of the company, which is held after the preparation of financial statements (hereinafter referred to as participants). The distribution of profit refers to its direction for the payment of dividends, in which the capital decreases, and for other purposes, in which the capital remains unchanged.

The amounts recorded in account 84 are carried over to subsequent periods and include, as a rule, not previously received net profit to be distributed among participants, but already distributed profit directed by them for the purposes of production, social development of the organization or to improve net assets and balance sheet structures. The balances recorded on account 84 also include amounts resulting from individual transactions not related to the receipt of net profit.

In fact, the account balance 84 may contain:

Retained profit (loss) of the reporting year, equal to net profit (loss) for this year;

Retained earnings from previous years, for which it was decided to leave the net profit for the corresponding year undistributed;

Profits distributed by participants aimed at development purposes, increasing capital;

Amounts arising from individual transactions not related to the receipt of net profit in accordance with established accounting rules (transfer of additional valuation from additional capital for written-off fixed assets in accordance with PBU 6/01, corrections for significant errors of previous years in accordance with PBU 22/2010, retrospective reflection of changes in legislation or significant changes in accounting policies in accordance with PBU 1/2008).

In IFRS, retained earnings are considered as one of the types of equity capital, which is formed as the remainder after payment of dividends and the creation of target reserves, however, IFRS does not contain a clear definition of retained earnings. There is no definition of retained earnings in Russian regulatory legal acts, which creates ambiguity in the understanding of this category.

Net profit (loss) and retained profit (loss) are not equivalent or identical concepts, since the indicators “net profit” and “retained profit” are formed on different accounting accounts and have different meanings (Letter of the Ministry of Finance of Russia dated August 23, 2002 N 04- 02-06/3/60). In the title of the article of the final financial result of the organization’s activities, one can notice discrepancies in the Order of the Ministry of Finance of Russia dated July 2, 2010 N 66n and clause 23 of PBU 4/99. However, in this case, according to the general rules, in our opinion, one should be guided by the definitions of a later regulatory legal act.

The legislator indicates net profit as a source of income from participation in joint-stock companies and limited liability companies. However, there is no indication that it is adopted based on the results of activities specifically for the reporting year. In paragraph 2 of Art. 42 of the Law of the Russian Federation N 208-FZ establishes that the source of payment of dividends is the company’s profit after taxation (net profit of the company). The company's net profit is determined according to the company's accounting (financial) statements.

Based on the above definition, we can conclude that income (dividends) to participants for the past year can be paid in an amount not exceeding the value of the net profit indicator in the financial results statement for this year. This opinion was originally contained in the Letter of the Ministry of Finance of Russia dated August 23, 2002 N 04-02-06/3/60. According to paragraph 1 of Art. 47 of the Law on Joint Stock Companies, the company is obliged to annually hold an annual general meeting of shareholders, as a result of this and in accordance with the same norm, the obligation to distribute net profit annually arises.

At the same time, the Law on Joint Stock Companies does not provide for the mandatory distribution of net profit among participants. According to paragraph 1 of Art. 42 payment of dividends is a right, not an obligation, clause 1 of Art. 43 provides for restrictions on the declaration of dividends, but there is no prohibition on their payment when the restrictive conditions end.

Under these circumstances, the practice of applying the legislation is as follows: dividends can be paid from retained earnings of previous years. Subsequently, the Russian Ministry of Finance did not object to this position (Letter dated May 18, 2007 N 03-08-05), stating that the issue of the legality of paying dividends from retained earnings of previous years does not fall within the competence of the Russian Ministry of Finance (Letter dated March 12, 2008 N 03-03-06/1/171).

Net profit for the past year, by decision of the general meeting of participants, can be directed: to the reserve fund; for the payment of dividends; for development; to cover the losses of previous years, and also left undistributed.

The direction of profit for development is, according to the wording of Law N 208-FZ, its distribution; the wording on the distribution of profit is unambiguous.

The Supreme Arbitration Court of the Russian Federation, in its Decision dated November 29, 2012 N VAS-13840/12, stated that by their economic nature, net profit and retained earnings are identical; a similar statement is also contained in the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated June 25, 2013 N 18087/12.

In our opinion, such an interpretation will be correct only if the retained earnings accounted for according to the accounting rules and reflected in the balance sheet consists exclusively of the net profit of the reporting year for which the annual general meeting of participants has not yet taken place, or the net profit of previous years, according to in which the participants decided to leave profits undistributed. However, as a rule, the balance under the item “Retained profit (uncovered loss)” of the balance sheet largely consists of profit already distributed by participants (directed for development) and profit from operations not related to the receipt of net profit. The concepts of net profit and retained earnings in the meaning in which they are used in accounting are not identical.

It should be noted that in the Decision of the Supreme Arbitration Court of the Russian Federation, the statement about the identity of net and retained earnings is based on the fact that retained earnings are formed as a result of accounting entries in the debit of account 99 and the credit of account 84. However, profit, which was already directed by participants for development purposes, was formed as a result These same accounting records make up the balance of account 84, but it cannot be recognized as a source of payment of dividends, since it has already been distributed.

In the situation under consideration, there is an ambiguous understanding of net, retained and distributed earnings, when companies can leave net profit undistributed and then decide to pay dividends from it as from the profits of previous years, in accounting it is necessary to have separate information specifically about the net profit of previous years , contained in the total amount in account 84, which can be used to pay participants income taxed at separate income tax rates. Accounting must be organized in such a way that retained earnings as part of capital and profits distributed by participants are not perceived as opposite concepts.

Analytical accounting for account 84 can be organized both at the level of created analytical accounting items and at the level of subaccounts for this account:

1 - “Net profit (loss) of the reporting year subject to distribution”;

2 - “Profit aimed at development”;

3 - “Net profit of previous years”;

4 - “Uncovered loss of previous years”;

5 - "Profit (loss) on operations not related to the receipt of net profit."

Account 84-1 takes into account the net profit or loss for the past year. The amount in this subaccount is formed as a result of closing at the end of the reporting year the balance formed on account 99 “Profits and losses” and reflected on line 2400 of the financial results statement, by an entry on account 99 in correspondence with account 84. The balance on this subaccount is subject to closure in next after the reporting year on the basis of the minutes of the annual general meeting of participants approving the annual financial statements and distribution of net profit.

The amounts of net profit distributed based on the decision of the annual general meeting of participants are reflected in the debit of account 84-1 in correspondence with the credit:

account 82 “Reserve capital” when creating a reserve fund;

account 75 “Settlements with founders” (or account 70) when paying dividends;

scores 84-2 when referred for development;

accounts 84-4 when paying off losses from previous years;

account 84-3 when deciding to leave net profit undistributed.

The net loss of the reporting year (debit balance on account 84-1) is debited to account 84-3, if there is a balance on it, and/or to the debit of account 84-4, if there is no balance on account 84-3 or this balance is insufficient . The general meeting of participants may decide to cover the loss from the retained earnings of previous years, if any (account 84-3). If a decision is not made, then after the meeting the closure of the loss should be reflected in the accounting statement with appropriate notification to the company’s management.

The legislation does not provide for the possibility of paying dividends or a ban on their payment if there is a net profit for the reporting year and at the same time there is an uncovered loss incurred for the periods preceding the reporting year. If the net profit of the reporting year and retained earnings of previous years can be summed up to pay dividends, then, in our opinion, such summation logic should be applied by participants in relation to uncovered losses from previous periods. In addition, it is necessary to take into account the requirement of prudence when conducting business activities. When paying dividends without covering losses from previous years, the question of applying the income tax rate will arise.

The chart of accounts provides for the accrual of dividends to persons who are employees of the company, according to the debit of account 84 and the credit of account 70 “Settlements with personnel for wages”. In our opinion, it is advisable to carry out such accrual using account 75 “Settlements with founders” as a transit account (D-t account 84 Account 75 and Account 75 Account 70), taking into account that individuals are classified as participants in the same way as legal entities, and this technique does not contradict the Instructions for using the Chart of Accounts.

The balance of account 84-2 cannot be used to pay dividends, since it represents profit distributed by the participants.

Account 84-5 contains amounts for other transactions not related to the receipt of net profit from the company's activities. The issue of covering losses arising from such operations is not legally defined. Since they entail a deterioration in the structure of the balance sheet, then, obviously, the company must decide whether to cover it from net profit. The credit balance on this subaccount cannot be used to pay dividends, since it is not formed from net profit.

As for the reflection of transactions directly on the debit of account 84 in correspondence with accounts 70, 76 (when participants decide to allocate net profit to the payment of remunerations, material assistance, and household needs), then, in our opinion, this approach is incorrect, since it contradicts PBU 10/99. According to this Regulation, expenses for social and domestic needs are taken into account during the year as they arise as other expenses in account 91 “Other income and expenses” (clause 11 of PBU 10/99). The execution of such decisions of participants should be reflected in entries in the debit of account 84-1 and the credit of account 84-2.

Another simpler option for obtaining the necessary analytical data could be to open three sub-accounts for account 84:

84-1 "Profit for distribution (loss)";

84-2 "Profit in capital";

84-3 "Profit (loss) from other operations."

Account 84-1 includes the net profit or loss of the reporting year. The amount according to the decision made by the participants to leave the profit undistributed remains in this account, the profit aimed at development is transferred to account 84-2. The debit balance on account 84-1 means a loss to be covered. This option includes a description of the recommended actions for the first option.

So, retained earnings in the part aimed at development and profits distributed by participants for the same purposes are not opposite categories from the point of view of the content contained in the regulatory documents, but they are opposite in perception - in pronunciation they are antonyms. The expression “accounting (or reflecting) distributed earnings as part of retained earnings” is absurd. Retained earnings, reflected in the balance sheet under the item called “Retained earnings (uncovered loss)”, in comparison with the phrase “distributed earnings”, are perceived as profits that participants can use to pay dividends, taking into account the fact that they can be paid out of profits past years.

For a clear understanding of retained earnings in the balance sheet, we believe that in the section “Capital and Reserves” it is advisable to change the title of the article “Retained earnings (uncovered loss)” to the title “Profit in capital (uncovered loss)”, and before this article introduce an additional article with entitled "Profit for Distribution".

The article “Profit for distribution” should reflect the profit of the reporting year and the net profit of previous years, for which the participants decided to leave the profit undistributed, provided that there is no uncovered loss.

Under the article “Profit in capital (uncovered loss),” the collapsed amount of profit aimed at development, the balance of uncovered loss and profit (loss) from other operations is subject to reflection.

With this reflection, the data in the “Capital and Reserves” section of the balance sheet will be perceived unambiguously.

If you do not enter an additional article “Profit for distribution”, then the article “Profit in capital (uncovered loss)” should be detailed.

The need to differentiate and disclose in the financial statements the categories of undistributed (net) and distributed profit is dictated by the following.

The minimum authorized capital for limited liability companies and non-public joint stock companies is currently 10 thousand rubles.

Obviously, the authorized capital is 10 thousand rubles. under existing inflationary processes, it cannot serve as a source of funds for the company. Therefore, the participants, without resorting to increasing the authorized capital, make decisions on directing net profit to increase capital (for investment, production, social development), which, according to the current accounting rules, remains in account 84.

When implementing the decisions of the participants, the profit distributed for development purposes actually serves as a source of formation of working and non-current assets of a business company on a par with the authorized capital and in many cases is a decisive element in the “Capital and Reserves” section of the balance sheet.

The perception by users of financial statements of the positive value of the indicator “Retained earnings (uncovered loss)” in the balance sheet as profit to be distributed among the company’s participants is false. This representation means that the amount of capital may decrease when participants decide to use retained earnings to pay them income (dividends).

In our opinion, data on the profit possible for distribution between participants and distributed for development purposes at the accounting level is important for the owners, and at the level of financial statements - important both for the owners and for its other users.

The implementation of the proposed accounting and reporting methods requires changes in the accounting regulatory documents. It should be noted that the forms of financial statements, by virtue of Order of the Ministry of Finance of Russia dated July 2, 2010 N 66n, unlike the previously effective Order, are not recommended, but approved. The introduction of changes to them does not contradict IFRS, since the form of the balance sheet is not regulated by international rules.

Literature

1. On the forms of financial statements of organizations: Order of the Ministry of Finance of Russia dated 07/02/2010 N 66n (as amended on 04/06/2015) // Reference and legal system "ConsultantPlus": [Electronic resource] / Company "ConsultantPlus".
2. On approval of the Accounting Regulations “Expenses of the Organization” PBU 10/99: Order of the Ministry of Finance of Russia dated 05/06/1999 N 33n (as amended on 04/27/2012) // Reference and legal system "ConsultantPlus": [Electronic resource] / Company "ConsultantPlus".

Retained earnings (loss) of the reporting year is an important indicator indicating the productivity of the company. Undistributed is considered to be the part of the profit that remains in the hands of the company after making payments and has not yet been directed either to the development of capacities or to the payment of dividends. Distribution of profits is the prerogative of the owners of the company, and this occurs on the basis of the minutes of the shareholders’ meeting, where the corresponding decision is recorded. Let's learn how to account for retained earnings (RE).

Retained earnings: formula

There is an opinion that retained earnings are net profits. This is true if the company did not pay dividends in the reporting year and has no deferred tax liabilities. The differences between undistributed (NP) and net profit (NP) are only in scope: NP is the result of the enterprise’s work for the entire period of the company’s existence and the reporting year, NP is the result of the company’s activities in the current period. Often it is net profit that acts as undistributed profit.

When calculating the amount of retained earnings (uncovered loss), they operate with the values ​​of its availability at the beginning of the year, the emergency (or loss) for the year and the amounts of dividends paid to the owners. For JSC, these are payments to shareholders, for LLCs, to the founders.

Depending on the final result of the company’s activities, the calculation formula is slightly modified:

• With the profit received, it is as follows - NP k = NP n + PE - D, where NP k and NP n are the values ​​of NP at the beginning and end of the period, D are payments to owners;
• If there is a loss - NP k = NP n - U - D, where U is the loss.

Retained earnings: account

To combine information about the actual presence and dynamics of the amounts of retained earnings or uncovered losses, there is an account of the same name 84.

The NP calculation mechanism is activated at the end of the year, when the balance sheet is reformed, i.e. closing productive accounts 90 and 91 at the end of the financial year when preparing reports. Closing account 90, the accountant transfers the balance to account 99 “Profits and losses”, drawing the results from the sale of manufactured products or services provided:

• D/t 90 – K/t 99 – profit made;
• D/t 99 – K/t 90 – loss allowed.

Transactions related to non-operating are reflected in the account of other costs and income - 91. At the end of the year, the accountant closes the 91st account, transferring the balance to the 99th:

• D/t 91 – K/t 99 – for the amount of calculated profit;
• D/t 99 – K/t 91 – for the amount of the incurred loss.

Balances on other accounts are also transferred to the 99th account, forming the results of work for the year. Subsequently, the accountant writes off the final balance of the 99th account to the 84th, reflecting the entries:

• D/t 99 – K/t 84 – if profit is made;
• D/t 84 – K/t 99 – if a loss is made.

To fix the amount of profit for the current period, an enterprise can create subaccounts to the account. 84. For example, take into account the profit in the current period on the account. 84/1, NP reflected on the account. 84/2, and the use of profit - on the account. 84/3. The profit of the reporting year inside the account will be reflected by the entry D/t 84/1 - K/t 84/2, and postings using the account. 84/3 – record the distribution of profits for various purposes.

After accounts 90, 91, 99 are closed, completely reset to zero, they will begin to be used again only next year. Before reflecting the amount of NP in the reporting, it is reduced by the amount of income tax (D/t 99 – K/t 68).

Accounting and use of retained earnings

Reflection of the value of the NP on the loan account. 84, the amount of accumulated profit at the end of the reporting period is determined. Its use is documented by the minutes of the owners’ meeting, and it can be used for various needs. For example:

Operation
Payment of income to company owners after approval of annual financial statements
Staff bonuses
Part of retained earnings is allocated:
To increase the size of the authorized capital		80 (for JSC) 75 (for LLC)
To replenish reserve capital
For the increase in additional capital
To repay established losses from previous periods
For investment

Analytical accounting by account. 84 is usually organized in such a way as to inform the user as much as possible about the areas of use of funds. Guided by the convenience of reflecting the use of profits, funds already aimed at ensuring the development of the company or acquiring assets and those not yet used are grouped separately.

Uncovered loss

To record losses incurred in the reporting year, a separate subaccount – 84/4 – can be created. If its value is not covered by the profits of previous periods, then the founders of the company make a decision to repay it from other sources, or leave it on the balance sheet. In this case, it becomes uncovered and is entered with a negative value in line 1370 of the balance sheet.

Sources for covering losses are various funds and reserves. Postings can be like this:

Analysis of retained earnings: what is evidenced by an increase or decrease in the indicator

When analyzing an NP, it is necessary to evaluate the change in its share in the amount of equity capital. A decrease in retained earnings indicates a decrease in the company's business activity. However, before drawing such conclusions, it is necessary to examine the structure of equity capital and take into account the fact that the size of the PE in many aspects is determined by the adopted accounting policy of the company. In addition, a decrease in NP is often preceded by the identification of errors that led to an overstatement of income, and, accordingly, a decrease in NP.

But if retained earnings have increased, this indicates:

• Accumulation of NP (but if it is not put into circulation by investing in projects or stimulating the same investors, then the company’s income may soon decrease due to a decrease in the competitiveness of manufactured goods, wear and tear of equipment, loss of attractiveness, etc.);
• Identifying errors in reporting that resulted in inflated costs;
• The presence of unclaimed dividends, from the date of accrual of which more than 3 years have passed.

The most acceptable for investors is a company that invests the funds remaining after paying dividends in its own development.

There is one unconditional way to distinguish a newcomer to the market from an experienced businessman. It will be enough to ask about the difference between income and profit. It is no secret that these categories are not at all equivalent; moreover, often the gross income of an organization is positive, while the net profit is completely negative. And the point is not in black accounting, but in the peculiarities of the distribution of funds received from the sale of products or services provided.

A company that receives some money for the results of its activities, in fact, at the time of receipt of payment already has a number of primary debts. At the same time, profit and retained earnings are also different concepts that should not be confused. Retained earnings are the final result that a company has after paying all priority obligations. The distribution of retained earnings may include both accounting for existing debts to creditors, and may have another target orientation. Retained earnings in circulation can turn into both a huge opportunity for the enterprise and cause bankruptcy, for example, if account 84 constantly shows a loss.

Before answering the question of what retained earnings are, it is necessary to take into account the obligations that arise to the company after each receipt of income. The first such obligation is income tax. This obligatory payment is withdrawn from the amount of gross income almost in the first place, turning the funds received into net profit.

After this, the company's shareholders receive their share of the amount received, the so-called dividends. Dividends can turn a profit into a loss, especially if the company is in poor condition. And finally, the remaining part of the capital will be the very profit that will be spent in several possible ways. The retained earnings of an organization very often serves as an indicator of the profitability of the enterprise, as well as its attractiveness to investors. Retained earnings, or rather its accounting, is an important factor when drawing up a prospectus for an enterprise. As a result, this may affect categories such as dividends and the number of shareholders.

Retained earnings, the formula of which takes into account income tax, as well as the costs of paying dividends to shareholders, from an audit point of view, is one of the areas of work of the accountant, and under his responsibility. Accounting for retained earnings is one of the most important functions of an accountant. According to current standards in accounting and auditing, retained earnings are displayed in the enterprise's balance sheet under article 84. Retained earnings, account 84 in the balance sheet, demonstrates the state of the enterprise at the time of the accounting period. Retained earnings for several past years in the accountant's circulation may not leave the balance sheet created by him at all, and may be the subject of a number of entries that do not have a material component. Operations of this type include an increase in the authorized or reserve capital.

In each reporting period, the accountant calculates the amount of planned retained profit or loss, however, determining the target direction of the funds received is the task of the competent authority at the enterprise. This body should be the board of directors, the chief director or a similar position. Retained earnings from previous years can accumulate, however, they often quickly find their intended use. The balance sheet displays net income and retained earnings differently. Net profit is one of the components of Form 2 of accounting at an enterprise, which contains all financial results for the accounting period. Retained earnings in their original form are extremely rare in Form 2.

Can retained earnings be a negative number?

Of course, retained earnings can be displayed as a negative number on the balance sheet; moreover, for domestic companies this is not at all uncommon. At the same time, you should not think that the presence of an uncovered loss for an enterprise is a guaranteed indicator of unreliability. For example, short-term receivables received on the eve of drawing up the balance sheet are quite capable of reducing the retained earnings indicator, or even making it negative. Retained earnings rarely act as a specific indicator of the efficiency of an enterprise, and more often serve as an indicator for determining investment potential.

Targeting of retained earnings

The two main purposes for using retained earnings are debt repayment and income capitalization, also known as profit hoarding. The latter simply means investing the received funds in the company and its fixed assets. However, most often the organization prefers to pay off creditors. Looking back at the practice of past years, we can confidently state the fact that most often it is the accounts payable account that acts as the target account in transactions with 84 balance sheet items. However, retained earnings can be invested in enterprises with the consent of shareholders and major creditors who agree to delay payments.

At the same time, this is not at all the fault of the domestic entrepreneur; unfortunately, those organizations that have not matured into medium-sized businesses often cannot withstand competition in the domestic market. The net profit of such enterprises should be used exclusively to pay off debt, if, of course, there is any income at all. After all, most often such enterprises suffer losses from their activities. Retained earnings in circulation require stability and reliability from the enterprise, otherwise it will have only one type - loss.

Among other things, retained earnings can be transferred to the authorized capital account of the enterprise. Organizations that have acted in this way pursue a number of goals, in particular, this is necessary to circumvent the requirements for the size of the organization’s authorized capital. And finally, one of the target areas is also considered to be the organization's reserve account, also known as reserve capital.

It should be noted that this item is most rarely the reason for the waste of retained earnings. Which, in principle, is quite logical from an economic point of view. After all, extracting a significant amount of money from circulation to turn it into dead weight seems ineffective. On the other hand, repaying a loan secured by real estate without proof of income seems much more effective. For a domestic entrepreneur, retained earnings are primarily a source for repaying debt.

Capitalization of retained earnings: why is it needed?

First of all, it should be noted that using retained earnings to invest in an operating company is a long-term investment, with all the ensuing consequences. In general, this is a transfer of funds received from Article 84 to the fixed assets account. Over the past few years, domestic entrepreneurs are gradually coming to the conclusion that accounting for retained earnings shows higher numbers for the organization that actively invests in its own production capacity. Thus, recently capitalization has gradually become more and more relevant and popular, especially for organizations that intend to penetrate foreign markets.

In addition to increasing the efficiency of the production cycle, capitalization of retained earnings is also necessary to attract investors and their funds. At the same time, it is necessary to take into account the characteristics of each investor individually. For example, some investors prefer short-term benefits from their investments and in the future rely only on stable income, without interest in the future of the company.

On the other hand, there is another category of investors who, within a couple of years, become so involved in the activities of the enterprise that they become full shareholders. This category relies on the constant development of the enterprise, its modernization and technological renewal. Retained earnings are an accountable indicator and are part of the corresponding report to investors.

Regarding the benefits, organizations that over the course of a couple of years have become committed to the policy of investing retained earnings in fixed assets can count on leading positions in a busy market segment. Often the production cycle of such an organization is faster, more productive, economical and efficient. They maintain a leading position in the segment and set the pace for other enterprises. At the same time, they most often act as leaders in the category of innovative potential.

On the other hand, such use of retained earnings is not without some disadvantages. Over the course of several years, the company turns into a structure dependent on creditors. However, not everyone who has chosen this path remains an operating company on the market. Very often, the account of such a company persistently shows zero for several years, until the moment when the invested equipment does not bring a return, that is, does not pay for itself. Beginners rarely resort to capitalizing retained earnings.

How can retained earnings affect the authorized capital?

Over the past few years, it has become clear to the entrepreneur that retained earnings are an excellent opportunity to increase the authorized capital. A natural question would be why this is needed. Accounting for authorized capital is necessary for several purposes. First of all, it is compliance of the authorized capital with the requirements of the state. It is no secret that over the past few years, each form of entrepreneurship has received its own state-established amount of authorized capital, which is necessary for the organization to function in the market. In this case, the direction of retained earnings to account for the authorized capital is required in order to comply with state requirements.

In addition, an increase in the authorized capital at the expense of retained earnings is required for the company to move to another category. For example, if an organization needs to obtain the status of a joint stock company and issue shares to the stock exchange, it will have, among other things, to increase its authorized capital account. And finally, retained earnings are used to increase the authorized capital in order to issue more shares of the enterprise. In this case, account 84 in the balance sheet is transferred to account for the authorized capital, and the company, by simple manipulations with the balance sheet, receives a larger authorized capital without any costs.

Why is it necessary to allocate retained earnings to the reserve?

The reserve fund is a kind of guarantee to creditors that in the event of bankruptcy of an enterprise, they can count on repayment of the debt. In addition, the reserve fund also serves as a warning indicator in case of force majeure. Accounting for reserve capital is also regulated by the state and over the past few years has established the minimum size of this fund for an organization in each category. Retained earnings as a source of increasing reserve capital are extremely rare and are typical for larger enterprises.

Such a reserve fund also serves as a kind of indicator of the attractiveness of the enterprise for creditors. If retained earnings on the balance sheet are spent primarily on reserve capital, this may be an indication that the company is inclined to accumulate borrowed funds. However, again, this is not typical for domestic enterprises, which, in the presence of attracted funds, first of all strive to either borrow more or pay off what they already have.

Dividends, like income taxes, can seriously reduce the amount of money you receive. Over the past several years and past production cycles, the company can finally dispose of the accumulated capital at its own discretion. The distribution of capital received may vary. However, in any case, retained earnings, its accounting and an increase or decrease in account 84 is an opportunity for an enterprise to slightly facilitate its survival in the market or to risk everything and invest the received funds in fixed assets. However, if retained earnings are a loss for the enterprise, then the board of directors is deprived of the opportunity to puzzle over its target orientation.

Over the past few years, dividends have become firmly established as a priority cost for the company. Retained earnings in this case are rarely positive, and if this happens, they are primarily used to pay off debts. Domestic shareholders are not inclined to believe that retained earnings are primarily a long-term investment.

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 the 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 was 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. Parus-Trade LLC has no reserve capital.

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);
• errors found in the current year, made in previous years, which 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 retained earnings from the past year cannot be fully distributed without taking into account the company’s previous performance results.

IMPORTANT!It must not be allowed that the value of the company’s net assets after transferring retained earnings of the reporting year for the payment of dividends becomes less than the size of the company’s authorized capital even if there is 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,

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 decrease 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 removed 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.

How does accounting reflect the formation and use of retained earnings of an enterprise? How does retained earnings interact with other components of equity? From what sources is the uncovered loss reimbursed? We will try to answer all these questions in this article.

Formation of retained earnings (uncovered loss)

The formation of retained earnings (uncovered loss) is carried out in the final turnover of December:

• Debit 99 “Profits and losses” Credit 84 “Retained earnings (uncovered loss)”- if the results of work for the year resulted in a profit;
• Debit 84 “Retained earnings (uncovered loss)” Credit 99 “Profits and losses”- if the results of work for the year resulted in a loss.

Example 1

The credit balance on account 99 “Profits and losses” at the end of the day December 31, 2013 is RUB 4,890,116.35.

As part of the balance sheet reformation, the following entry will be made:

Increase in retained earnings...

… upon disposal of previously revalued fixed assets

Upon disposal of a fixed asset item in accordance with the last paragraph clause 15 PBU 6/01 “Accounting for fixed assets” the amount of its revaluation is transferred from additional capital to retained earnings by posting Debit 83 “Additional capital” Credit 84 “Retained earnings (uncovered loss)”.

Example 2

The company sold a fixed asset for 118,000 rubles, including VAT - 18,000 rubles. The book value of the object is 122,765.36 rubles, depreciation is 49,611.20 rubles. The additional capital includes a revaluation balance of the object in the amount of RUB 28,823.55. The transfer of the object to the buyer took place on 04/14/2014, funds were received on 04/16/2014.

Contents of the operation	Debit	Credit	Amount, rub.
14.04.2014
Depreciation of an asset has been written off	02	01	49 611,20
The residual value of the asset is written off (122,765.36 - 49,611.20) rub.	91-2	01	73 154,16
Income from the sale of fixed assets is recognized	62	91-1	118 000
VAT charged	91-2	68	18 000
The amount of additional valuation was written off due to the disposal of the object	83	84	28 823,55
16.04.2014
Cash received from the sale of fixed assets	51	62	118 000
30.04.2014
Profit from sale is recognized as part of final turnover (118,000 - 18,000 - 73,154.16) rub.	91-9	99	26 845,84

An accounting entry on the write-off of additional capital to retained earnings upon disposal of an object does not change the amount of equity capital, since both additional capital and profit represent its parts. However, profit, unlike additional capital, has an open list of areas for spending. The revaluation fund received into the retained earnings account can be safely spent, including on the payment of dividends, since previously the revaluation amount was expensed through depreciation. Writing off the revaluation fund as profit only restores the amount of the previously underestimated profit.

…at the expense of the participants (shareholders)

According to pp. 3.4 clause 1 art. 251 Tax Code of the Russian Federation shareholders or participants have the right to transfer property, property rights or non-property rights to the enterprise in order to increase net assets. By decision of the owners, these funds can be credited to increase retained earnings.

Example 3

On April 10, 2014, the sole participant of the LLC decided to replenish the profit by 1 million rubles. in order to increase the company's net assets. The funds were transferred on April 10, 2014.

The following entries will be made in accounting:

* For account 75 “Settlements with founders”, subaccounts other than those provided for can be opened, for example 75-3 “Other settlements with founders”.

Repayment of uncovered losses...

Since account 84 is active-passive, repayment of an uncovered loss can be considered as a special case of the formation of retained earnings. Operations are also carried out on the credit of account 84, but they do not increase the credit balance (retained earnings), but reduce the debit balance (uncovered loss).

…at the expense of reserve capital

Based on clause 69 of the Regulations on accounting and financial reporting in the Russian Federation reserve capital is used to cover losses. Covering the loss at the expense of reserve capital is carried out by debiting account 82 “Reserve capital” and crediting account 84 “Retained earnings (uncovered loss)”.

Example 4

According to data for 2013, the uncovered loss of the joint-stock company amounted to 1,890,378 rubles. Reserve capital is 634,120 rubles. On March 12, 2014, the Board of Directors decided to partially cover the loss using reserve capital funds.

If the amount of the resulting loss is greater than the amount of the accumulated reserve capital, retained earnings from previous years or funds of shareholders (participants) can be used to repay the loss.

…at the expense of retained earnings

In this case, two situations are possible:

1) to repay the uncovered loss of the reporting year, participants (shareholders) use retained earnings from previous years;

2) to repay the uncovered losses of previous years, participants (shareholders) use retained earnings of the reporting year. Let us remind you that losses of previous years in the presence of net profit for the reporting year do not cancel the rights of owners to dividends. The law links the payment of dividends to the size of net assets, but not the total balance of the retained earnings account.

Repayment of losses from previous years is reflected by posting Debit 84 “Retained earnings (uncovered loss)”, subaccount “Retained earnings (uncovered loss) of the reporting year” Credit 84 “Retained earnings (uncovered loss)”, subaccount “Retained earnings (uncovered loss) of previous years”.

This posting is not of a technical nature as a transfer within account 84; for it to be carried out, the minutes of the meeting of participants (shareholders) are required.

The repayment of the loss of the reporting year is reflected by posting Debit 84 “Retained earnings (uncovered loss)”, subaccount “Retained earnings (uncovered loss) of previous years” Credit 84 “Retained earnings (uncovered loss)”, subaccount “Retained earnings (uncovered loss) of the reporting year”.

Typically, such entries are made if the reserve capital has already been spent.

Example 5

Let's supplement example 4 with initial data. Retained earnings from previous years amount to RUB 2,032,188. The meeting of shareholders on April 14, 2014 decided to cover the loss remaining after using the reserve capital using retained earnings from previous years - RUB 1,256,258. (1 890 378 - 634 120).

* Separate subaccount “Retained earnings (uncovered loss) of previous years.”

** Separate sub-account “Retained profit (uncovered loss) of the reporting year.”

…at the expense of participants (shareholders)

Under action pp. 3.4 clause 1 art. 251 Tax Code of the Russian Federation, which allows you to increase the net assets of the enterprise with the funds of shareholders (participants), repayment of uncovered losses is also suitable. The help of shareholders (participants) is vital precisely at the moment when the enterprise suffers losses, since this threatens bankruptcy and liquidation of the enterprise. Therefore, the owners' coverage of losses is the most common case of restoring the value of the enterprise's net assets. The accounting entries will be similar to those discussed in example 3.

...at the expense of the authorized capital

The legislation provides for a case in which repayment of an uncovered loss is made at the expense of the authorized capital. If the value of the company's net assets remains less than its authorized capital at the end of the financial year following the second financial year or each subsequent financial year, at the end of which the value of the company's net assets was less than its authorized capital, the company no later than six months after the end of the corresponding financial year year is obliged to make one of the following decisions: 1) reduce the authorized capital to an amount not exceeding the value of its net assets, 2) liquidate the company ( clause 6 art. 35 of the Law on JSC,clause 4 art. 30 of the LLC Law).

A decrease in the authorized capital to an amount not exceeding the value of the company's net assets is reflected in the accounting records by the entry Debit 80 “Authorized capital” Credit 84 “Retained earnings (uncovered loss)”.

Example 6

The meeting of LLC participants decided to reduce the authorized capital by 670,000 rubles. (from 1 million rubles to a net asset value of 330,000 rubles) by reducing the nominal value of the shares of all participants. Registration of changes in the charter was made on April 22, 2014.

Use (distribution) of net profit...

Distribution of net profit is carried out on the basis of a decision of the general meeting of shareholders (participants). The list of areas for spending net profit is open, and most of the purposes for its use are specially prescribed in the legislation:

• formation of reserve capital ( clause 1 art. 35 of the Law on JSC, clause 1 art. 30 of the LLC Law);
• payment of dividends ( clause 2 art. 42 of the Law on JSC, Art. 28 of the LLC Law);
• increase in authorized capital ( clause 5 art. 28 of the Law on JSC, Art. 18 of the LLC Law);
• formation of an employee shareholding fund ( clause 2 art. 35 of the Law on JSC);
• repayment of uncovered loss ();
• creation of special purpose funds ( clause 1 art. 30 of the LLC Law);
• other purposes ( pp. 11 clause 1 art. 48 of the Law on JSC).

…for the formation of reserve capital

According to clause 1 art. 35 of the Law on JSC joint stock companies obliged create a reserve fund; in accordance with clause 1Art. 30 of the LLC Law limited liability company Maybe create a reserve fund.

Deductions to reserve capital from profits are reflected in the credit of account 82 “Reserve capital” in correspondence with account 84 “Retained earnings (uncovered loss)”.

Example 7

The size of the enterprise's reserve capital, provided for by its constituent documents, is 10% of the authorized capital. The annual contribution is 10% of net profit. At the time of the meeting of the board of directors (03/12/2014), the authorized capital was 15 million rubles, reserve capital - 834,890 rubles; The company's net profit for 2013 amounted to 2,411,120 rubles.

According to the charter, the reserve capital should be 1.5 million rubles. (RUB 15 million × 10%). Using the net profit of 2013, the company can create reserve capital in the amount of 241,112 rubles. (RUB 2,411,120 × 10%). Before reaching the value provided for by the charter, it is necessary to accrue additional reserve capital in the amount of 665,110 rubles. (1,500,000 - 834,890). The Board of Directors decided to allocate RUB 241,112 to create reserve capital. net profit 2013.

…to pay dividends

According to the direction of part of the profit of the reporting year for the payment of income to the founders (participants) of the enterprise based on the results of approval of the annual financial statements, it is reflected in the debit of account 84 “Retained earnings (uncovered loss)” and the credit of accounts 75 “Settlements with founders” and 70 “Settlements with personnel for payment labor." A similar entry is made when paying interim income.

Example 8

The participants of Krapiva LLC are two persons: Vershina LLC (75% share) and N. A. Tarasov (25% share); N. A. Tarasov is also an employee of Krapiva LLC. The general meeting of participants on March 25, 2014 decided to pay dividends for 2013 to the participants in proportion to their shares in the total amount of 300,000 rubles. Dividends were paid on 04/03/2014. Krapiva LLC itself did not receive dividends from other persons in 2013.

The following entries will be made in the accounting records of Krapiva LLC:

Contents of the operation	Debit	Credit	Amount, rub.
25.03.2014
Dividends accrued to Vershina LLC (RUB 300,000 × 75%)	84	75-2	225 000
Dividends accrued to N. A. Tarasov (RUB 300,000 × 25%)	84	70	75 000
03.04.2014
Profit tax withheld from Vershina LLC (RUB 225,000 × 9%)	75-2	68	20 250
Personal income tax withheld from the income of N. A. Tarasov (RUB 75,000 × 9%)	70	68	6 750
Dividends of Vershina LLC have been transferred (225,000 - 20,250) rub.	75-2	51	204 750
Dividends transferred to N. A. Tarasov (75,000 - 6,750) rub.	70	51	68 250

…to increase the authorized capital

Net profit is used to increase the authorized capital, when such an increase is made not at the expense of contributions from shareholders (participants), but at the expense of the property of the enterprise itself. In this case, the amount by which the authorized capital of the company is increased at the expense of the company’s property must not exceed the difference between the value of the company’s net assets and the amount of the authorized capital and reserve capital (fund) of the company ( para. 2 clause 5 art. 28 of the Law on JSC, clause 2 art. 18 of the LLC Law).

An increase in the authorized capital due to retained earnings is reflected by the entry Debit 84 “Retained earnings (uncovered loss)” Credit 80 “Authorized capital”.

Example 9

The general meeting of shareholders of the CJSC decided to increase the authorized capital by 2 million rubles. by increasing the par value of shares using part of the retained earnings of previous years. Registration of changes in the charter was made on March 25, 2014.

…for the formation of additional capital

Based on acceptable Instructions for using the Chart of Accounts correspondence between accounts 83 “Additional capital” and 84 “Retained earnings (uncovered loss)” and taking into account the freedom of expression of owners, we can conclude that retained earnings can be used to replenish additional capital.

Example 10

The meeting of shareholders decided to share part of the net profit for 2013 in the amount of 1 million rubles. allocated to increase additional capital (minutes dated April 22, 2014).

The following entry will be made in accounting:

...for the purchase of property

The acquisition of fixed assets does not cause the expenditure of net profit. However, based on Instructions for using the Chart of Accounts the enterprise has the right to organize accounting of sources of capital investments, and in this case account 84 will be used.

The use of profit for the purchase 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;
• and at the same time Debit 84 “Retained earnings (uncovered loss)” Credit 84 “Retained earnings (uncovered loss)”, subaccount “Retained earnings allocated for the acquisition of fixed assets”- net profit is used to purchase property.

Example 11

The accounting policy of the enterprise provides for accounting for sources of financing capital investments. On April 15, 2014, the enterprise received an item of fixed assets at a price of 118,000 rubles, including VAT of 18,000 rubles. The facility was put into operation on April 17, 2014.

Contents of the operation	Debit	Credit	Amount, rub.
15.04.2014
Property purchased	08	60	100 000
Input VAT taken into account	19-1	60	18 000
17.04.2014
The acquired property was accepted for accounting as part of the fixed assets asset	01	08	100 000
“Input” VAT is accepted for deduction	68	19-1	18 000
Source of funding reflected	84	84*	100 000

* Sub-account “Retained earnings aimed at purchasing fixed assets.”

...for other purposes

The owners of the enterprise have the right to spend net profit for other purposes, for example, to encourage employees, charitable purposes, to finance social events, conduct cultural and sports events, etc. However, the Ministry of Finance believes that Instructions for using the Chart of Accounts there is no provision for reflecting enterprise expenses on account 84 “Retained earnings (uncovered loss)” ( letters dated December 19, 2008 No. 07‑05‑06/260 , dated June 19, 2008 No. 07‑05‑06/138 ). The Ministry of Finance recommends reflecting such expenses as other expenses based on clause 11 PBU 10/99 “Organization expenses”. According to the author, attributing non-production costs to expenses or profit is a matter not only of accounting, but also of civil law. Not every shareholder (participant) will tolerate it if costs that are not directly related to making a profit are written off without going through the approval procedure with the owner.

Since Chart of accounts There are no expense transactions for account 84, and the owners cannot meet for each expense transaction; special-purpose funds are created from profits. Chart of accounts there is no separate balance sheet account allocated for accounting for funds formed on the initiative of the enterprise. Therefore, you can use either account 84 “Retained earnings (uncovered loss)” or account 76 “Settlements with other debtors and creditors”. When accounting for special-purpose funds in account 84 “Retained earnings (uncovered loss),” a contradiction again arises with the explanations of the Ministry of Finance. According to the author, special purpose funds, although intended for use, are not obligations to creditors in the classical sense of the word. Therefore, it is fair to take into account the unspent balance of these funds in account 84 as part of equity capital. If we rely on the opinion expressed by the Ministry of Finance, then it is more legitimate to use account 76 “Settlements with other debtors and creditors,” which has practically no restrictions on correspondence with other accounts. But in any case, account 91-2 “Other expenses” is not used to account for expenses from profit.

Example 12

The JSC provides for the formation of a corporatization fund for employees. According to the accounting policy, the corporatization fund is accounted for in a separate subaccount of account 84 “Retained earnings (uncovered loss).” The balance of the fund is 3.6 million rubles.

The balance sheet of the OJSC includes 1,890 shares purchased from shareholders at a redemption price of 2,470 rubles. per piece, totaling RUB 4,668,300. On April 16, 2014, the Board of Directors decided to distribute 1,000 shares free of charge among the top management of the enterprise, using funds from the employee share fund.

The entry in the register of shareholders was made on April 24, 2014.

The OJSC will make the following entries in its accounting:

Conclusion

It is more profitable for an enterprise to maintain its own capital in net profit, and not in authorized or additional capital. With profit, you can quickly restore losses, replenish the authorized capital if its minimum size is increased by law, and increase other funds in the equity capital. The higher the amount of retained earnings, the further the enterprise is from the threat of bankruptcy and the more optimistic its prospects.