How to formalize and record the use of net profit

To make it more convenient for you to keep track of the use of profits, you can open sub-accounts for account 84:

• “Profit to be distributed”;
• "Retained earnings";
• "Uncovered loss."

If at the end of the reporting year your organization made a profit, make a credit entry to account 84:

DEBIT 99 CREDIT 84 subaccount “Profit subject to distribution”
- reflects the net profit of the reporting year.
If at the end of the reporting year your organization received a loss, make an entry in the debit of account 84:

DEBIT 84 subaccount “Uncovered loss” CREDIT 99
– reflects the net (uncovered) loss of the reporting year.

What to do with retained earnings

There are several main ways to refer an NP. Among them:

• payment of dividends to owners/shareholders;
• compensation for earlier losses;
• accumulation of reserve fund funds;
• other goals agreed upon by managers.

IMPORTANT! Regarding the last point, it is worth making a small clarification. In this case, managers do not mean nominal officials, but business owners. As a rule, they resolve such issues during the final annual meeting, at which the corresponding minutes are drawn up.

Documenting

In an LLC, the decision on the distribution of net profit is documented in the minutes of the general meeting of participants (clause 1, article 28, clause 6, article 37 of the Law of February 8, 1998 No. 14-FZ). There are no mandatory requirements for the minutes of the general meeting of LLC participants in the legislation. But there are details that are better to indicate. This is the number and date of the minutes, place and date of the meeting, agenda items, signatures of participants.

In a joint stock company, minutes of the general meeting of shareholders are drawn up. It differs from the minutes of the general meeting of LLC participants in that it is drawn up in two copies and has mandatory details. They are listed in paragraph 2 of Article 63 of the Law of December 26, 1995 No. 208-FZ and paragraph 4.29 of the Regulations approved by order of the Federal Financial Markets Service of Russia dated February 2, 2012 No. 12-6/pz-n.

In companies created by a single founder, minutes of general meetings are not drawn up (Article 39 of the Law of February 8, 1998 No. 14-FZ, paragraph 3 of Article 47 of the Law of December 26, 1995 No. 208-FZ). The direction of spending net profit is determined by the sole founder by his written decision.

Retained earnings. Check

All NP for the past years is summarized in accounting account 84, the balance credit balance is placed in line 1370 of the balance sheet. The same line contains the amount of uncovered loss (if any), which is indicated in parentheses. Uncovered loss means the difference between the company's expenses and income during the year, according to which the first point exceeds the second.

The account contains information about the denomination and changes in the amount for the reporting year. At the end of the year, the amount is credited to account 84, while the loss is written off as a debit. The main task of this account is to store information about the purposes for which the funds were used.

An uncovered loss is sometimes called a deficit profit. The loss can be fully or partially compensated using reserve capital funds. In the case of compensation, data on the initial loss is not filled in (in case of partial compensation, only the remaining amount of the loss is indicated in parentheses).

IMPORTANT! At the request of the accounting department, additional lines – 1371 and 1372 – can be entered in the balance sheet to differentiate the figures for the reporting and previous years.

Example 1. Calculation of NP for Prospect LLC (total amount and for the period 2021)

It is necessary to calculate two amounts of NP. First: the size of the NP only for 2021. Second: its total size for the entire existence of Prospect LLC. According to the financial statements of Prospekt LLC:

1. At the beginning In 2021, the NP indicator was RUR 120 million. rub.
2. Throughout 2021, this account of Prospekt LLC increased by another 10 million. rub.
3. In addition, in the same year 2021, the company paid dividends in the amount of 3 million rubles. rub.

First, you should calculate the value of the NP for 2021: 10 million RUR. rub. – RUR 3 million rub. = 7 million RUR rub. After this, you can calculate its total size as of the end of 2021: RUR 120 million. rub. + 7 million RUR rub. = RUR 127 million rub.

Calculation of retained earnings. Detailed formula

So, we found out that retained earnings are the amount of funds remaining at the disposal of the company’s owners after all taxes and other mandatory deductions. This indicator can be calculated using the formula:

HPk = HPn + ChP – D

Where:

• HPc – surplus of funds at the end of the reporting period;
• HPn – the same indicator at the beginning of the period;
• PE – net profit minus income tax;
• D – dividends distributed for the reporting period, based on the RR of the previous periods.

Note: The standard reporting period is one year.

If during the current period the company received a net loss instead of profit, the formula takes on a slightly different form:

NPk = NPn – CHU – D

Where:

• HPc – surplus of funds at the end of the reporting period;
• HPn – the same indicator at the beginning of the period;
• NL – net loss;
• D – dividends distributed for the reporting period, based on the RR of the previous periods.

The remaining indicators are similar to the previous formula.

Question: Does an LLC have the right to make incentive payments to employees from retained earnings and how to formalize this, and are they taken into account when calculating the average salary? View answer

"Special Purpose Funds"

The current Chart of Accounts (approved by order of the Ministry of Finance of Russia dated October 31, 2000 No. 94n) does not provide for separate subaccounts for the creation of special-purpose funds (in the previous Chart of Accounts of 1992, account 88 “Retained earnings (uncovered loss)” provided for subaccounts “Consumption funds " and "Accumulation funds").

Sometimes the owners of an organization decide to pay bonuses to employees and financial assistance from net profits. Some even decide to create so-called consumption and accumulation funds, charitable foundations.

Important

The laws on JSC and LLC do not provide for any payments from profits to anyone other than the owners. And account 84 “Retained earnings (uncovered loss)” is the account of the owners, and only they have the right to receive dividends.

And the Russian Ministry of Finance has repeatedly indicated that account 84 is not intended to reflect all kinds of social and charitable expenses, payments of material assistance and bonuses (see, for example, letters of the Russian Ministry of Finance dated June 19, 2008 No. 07-05-06/138, dated 19 December 2008 No. 07-05-06/260).

Expenses of an organization are recognized as a decrease in economic benefits as a result of the disposal of assets (cash, other property) and (or) the emergence of liabilities, leading to a decrease in the capital of this organization, with the exception of a decrease in contributions by decision of participants (owners of property) (clause 2 of PBU 10/99) .

Organizational expenses for sporting events, recreation, entertainment, cultural and educational events and other similar events, as well as transfers of funds to charity, are other expenses and should be accounted for in account 91 “Other income and expenses.”

In other words, any disposal of assets (except for dividends) is an expense of the current period (clause 2 of PBU 10/99). They have nothing to do with the organization's net profit. Such expenses cannot be debited to account 84; this is contrary to current accounting regulations.

So, if the owners want the company to buy an operating system from profits or spend money on charity, the accountant needs to record such costs in the usual way as assets or expenses. When purchasing fixed assets, organizations simply spend funds from the current account and one asset (money) is exchanged for another (fixed asset).

And the organization’s expenses for paying bonuses to employees, transferring funds to charity, and the like are always recognized as expenses of the organization and are reflected in the financial results statement. Account 84 is not used in postings.

Acquisition of fixed assets

Based on the Instructions for using the Chart of Accounts, you can organize accounting for sources of capital investments, and in this case account 84 will be used. This must be provided for in the accounting policy.

The use of profit for the acquisition 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;
Simultaneously

DEBIT 84 “Retained earnings (uncovered loss)” CREDIT 84

“Retained earnings (uncovered loss)”, subaccount “Retained earnings aimed at purchasing fixed assets”

— net profit is used to purchase property.

EXAMPLE The accounting policy of JSC Aktiv (general taxation system) defines the source of financing for capital investments - retained earnings. The Aktiva accountant opened a subaccount for account 84, “Retained earnings aimed at acquiring fixed assets.” In April of the current year, a fixed asset worth 53,100 rubles was purchased. (including VAT - 8,100 rubles). The accountant made the following entries: DEBIT 08 CREDIT 60 - 45,000 rubles. - fixed asset purchased; DEBIT 19-1 CREDIT 60 - 8100 rub. – “input” VAT is taken into account; DEBIT 01 CREDIT 08 – 45,000 rub. - the acquired fixed asset is accepted for accounting; DEBIT 68 CREDIT 19-1 - 8100 rub. - “input” VAT is accepted for deduction; DEBIT 84-2 CREDIT 84-3 – 45,000 rubles. – the source of financing is reflected (the use of net profit for the purchase of fixed assets).

Charity

In the Recommendations for audit organizations, individual auditors, auditors on conducting an audit of the annual financial statements of organizations for 2014 (attachment to letter dated February 6, 2015 No. 07-04-06/5027), the Ministry of Finance of the Russian Federation once again warns against isolation in accounting for expenses account of funds formed from net profit. Such expenses are reflected in the general manner. And funds should be accounted for in off-balance sheet accounts.

EXAMPLE 3 For the current year, the LLC has established a charity financing fund in the amount of 100,000 rubles. It is reflected in off-balance sheet account 012. In the reporting year, 80,000 rubles were spent on charity. At the end of the year, the LLC received a loss that exceeded the profit of previous years. The accountant will make entries: DEBIT 012 - 100,000 rubles. – a charity financing fund was formed in accordance with the decision of the general meeting of LLC participants; DEBIT 91-2 CREDIT 76 - 80,000 rubles. – current expenses for charity are reflected; LOAN 012 - 80,000 rubles. – the targeted expenditure of the fund is reflected. Since charity expenses were made from the profit remaining after taxation, such expenses on the basis of paragraph 1 of Article 270 of the Tax Code of the Russian Federation cannot be taken into account for profit tax purposes. On the last day of the reporting year, the accountant made the entry: CREDIT 012 — 20,000 rub. (100,000 – 80,000) – the charity financing fund was disbanded due to the use of profits from previous years to pay off the loss of the reporting year.

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Loss Coverage

If a company has received an uncovered loss, it must write it off in different ways. There are several possible ways:

• At the expense of the reserve fund.
• From the accumulated profit fund for previous years.
• Due to additional capital.
• Reduction of authorized capital.
• At the expense of the owners' own funds.

The reasons why the company suffered a loss must be established. Measures are being taken to prevent this from happening in the future.

Source

Answers to frequently asked questions

Question No. 1: It is well known that NP may change from one period to another depending on the income received. What else can influence its size?

In fact, there are quite a lot of influencing factors. First of all, these include changes in the size of dividends, net profit, taxes, cost of products sold, as well as administrative expenses.

In practice, a detailed financial analysis is carried out, which shows which factors in a given situation “helped” to make a profit.

Question No. 2 : Are dividends subject to mandatory insurance contributions?

No, they are not taxed, since they are not considered as an employee’s salary. Only income tax is withheld from them.

Example 2. Difference between PE and NP

In order to clearly understand the difference between PE and NP, it is proposed based on data from the accounts. reporting of Prospekt LLC to determine the total size of the company’s NP as of the end of 2021.