The purpose of any business is retained earnings. This is quite natural, because its presence means an increase in the company's own capital, which allows you to make more and more large transactions and, accordingly, leads to an increase in income in the future.
Retained earnings - is the profit of a company that has not been paid in the form of dividends and is reflected in account 84 “Retained earnings”.
The balance on this account, as well as on any other, can be negative and positive - it all depends on the proceeds from the debit and credit of this account.
The net profit of the enterprise is reflected on the loan , and on dividends - dividends, these two articles mainly affect what retained earnings will be. However, this does not mean at all that it is an asset of the company, and its accumulation more likely indicates that the funds received as a result of profitable activity were reinvested in production.
Consider the example in which 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. Suppose that 400 thousand rubles. - This is the previous annual retained earnings, this allows us to compile a report on the distribution of net profit for 2012.
You do not need to be great mathematicians to understand that the retained earnings of the reporting year were, therefore, 400 thousand rubles. In the future, the meeting of shareholders can choose independently how to dispose of it for the benefit of the enterprise.
Statement of retained earnings for 2012Retained 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 |
As can be seen from the calculation, 400 thousand rubles. - This is a positive account 84 “Retained earnings” at the end of 2012. This suggests that the assets of the enterprise as a whole have increased, but the proportionality of the increase in their individual types remains in question. A negative balance on this account usually happens when a company's losses and dividend payments exceed profits from
operating activities. In this case, the meeting of shareholders usually makes a decision to reduce
share capital in order to overcome the deficit. A negative balance on this account is called a debit balance, and a positive balance is called a credit balance, since the 84th account is essentially active-passive.
Please note that all postings on account 84 are associated with the distribution of profits by decision of the founders and participants of the organization’s management. Actually retained earnings of the enterprise is the balance in this account at the beginning or end of a certain period. From account 99 “Profit and loss”, the amount of profit is debited to the 84th account at the end and at the beginning of the period once. The resulting net profit is distributed to
pay dividends, improve production conditions, replenish the
reserve fund and liquidate losses from previous years.