Retained earnings

Retained earnings are part of the net income remaining after the payment of dividends and intended for reinvestment in the development of production or for the payment of debts of the enterprise. This part of the profit is invested in the fixed capital of the enterprise. Retained earnings are often held in the form of various securities or in the form of cash balances and balances on settlement accounts. It is used to finance capital investments, to pay off loans and increase the volume of liquid assets. Compared to the usual mobilization of new capital by the method of issuing shares and borrowing, retaining the profit share is a simpler method of financing the needs of the enterprise. Retained earnings are invested in the purchase of new enterprises or companies, the acquisition of assets and the expansion of commodity credit. It is a source of financing for investment in the economy.

The amount left after subtraction from the profit received by the enterprise of all amounts of taxes and mandatory payments is called "net profit". The owners of the company have the full right to dispose of it. It is the main source of income payments to these owners, and its availability favors the attraction of additional investments in the enterprise. Retained earnings of previous years, remaining at his disposal after income payments, are used to increase own capital, which is invested in the development of production.

Undistributed profit in the balance sheet is formed throughout the year and is reflected in the December turnover of the reporting year. The following entry is made:
Дт 99 Кт 84 "Retained earnings". This posting means a write-off of profits.
Shareholders or the administration of the organization at the general meeting determine the order of profit distribution. In this case, the provisions provided for in the constituent documents of the company are used. His decision is fixed in a special protocol. It is on the basis of this document that accounting records all necessary records. Before making the entries, the accountant must check the compliance of the decision in the protocol with the order of profit distribution set out in the organization's Charter. This profit is directed to:

• Repayment of losses;
• Authorized capital;
• Payment of dividends;
• Development of the enterprise;
• Reserve capital;
• Creation of special funds (social sphere and consumption).

There is undistributed profit before taking into account the decision on the distribution of profits in the form of dividend payments and taking into account such a decision. The first is reflected in the reports as a net profit, and the second is reflected in the balance sheet.

Part of the profit that was spent during the reporting period is written off when it was used, and only part of it that is intended for disposal by the owners is reserved for the reformation.

When the profit is reorganized, the credit balance (balance) is displayed on account 99 "Profit and loss". He is referred to account 84, called "Retained earnings (uncovered loss)." This posting is the last one for the year.

For the formation of more detailed information on the ways of profit distribution to the 84th account, it is recommended to open and several sub-accounts, on which this information will be detailed. Systemic display of the use of profit facilitates communication between the participants of the organization at the time of resolving the issue of the amount of income that is planned to be paid in the form of dividends.

Of course, retained earnings require careful consideration, so all of its changes are reflected in the financial report, which is made in this way:

• First of all they show the incoming amount of undistributed profit;
• Further to the amount of profit add all the amounts that were transferred from the funds;
• From the figures obtained earlier, deduct the amounts transferred to funds and dividends intended for payments to participants;
• As a result of all the calculations, the desired profit at the end of the period is obtained.