Retained earnings - it's easy!

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2018-04-02 01:51:09

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The Goal of any economic activity is retained earnings. It is quite natural, because its presence means an increase in the equity capital of the company that allows you to make more and larger deals and, therefore, leads to increase in the future income.

retained earnings is aRetained earnings-is the profit of the company, which has not been paid in the form of dividends and is reflected in the account 84 "retained earnings”.

The Balance on this account, as on any other, can be negative and positive – it all depends on the income debit and credit this account.

The loan is reflected net profit of the company, and debit – dividends, these two articles basically affect what is retained earnings. This, however, does not mean that it is an asset of the company, and its accumulation rather that the result of profitable activities funds were reinvested in production.

Consider an example where the company in 2012 earned 500 thousand rubles, paid in the form of dividends 300 thousand rubles and invested in the production of 200 thousand rubles. Assume that 400 thousand. – previous year's retained earnings, it allows us to report net profit distribution for the year 2012.

You do Not need to be great mathematicians to understand that the undistributed profit of the reporting year was thus 400 thousand. In the future, shareholders can choose for himself how to dispose of it for the benefit of the company.

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The statement of retained earnings for 2012

Retained earnings at the beginning of 2011

400 000

Net profit

500 000

Subtotal

900 000

Dividends

300 000

Reinvestment

200 000

Balance of retained earnings at the end of 2012

400 000

undistributed profitsAs can be seen from calculation of 400 thousand rubles. – this is a positive account 84 "retained earnings" at the end of 2012. This suggests that the assets of the company as a whole increased, but the proportional increase of individual species remains in question. A negative balance in this account usually happens when the losses of the company and the payment of dividends that exceed the profit generated from operating activities. In this case, the shareholders ' meeting usually decides on the reduction of share capital to overcome the deficit. The negative balance on this account is called a debit balance, while a positive – credit as the 84th account by its nature is active-passive.

undistributed profit of the reporting yearPlease note that all account transactions 84 associated with the profit allocation by decision of the founders and members of management of the organization. In fact, the undistributed profit of the enterprise – the balance on this account at the beginning or end of a certain period. From the account 99 “Profit & loss" amount of profit is deducted at the 84th a bill at the end and the beginning of the period once. The net profit distributed for payment of dividends, improving production conditions, the replenishment of the reserve Fund and the elimination of losses from previous years.


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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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