Accounting for retained earnings on account 84 (postings)

From this article you will learn:

• What does retained earnings mean?
• How is retained earnings formed?
• What can retained earnings be used for?
• What to do with retained earnings when liquidating an LLC

Retained earnings of an LLC represent income received from business activities after taxes - it must be distributed among the participants of the company, taking into account the size of their shares and contributed capital. This concept can mean both additional income and losses incurred by the enterprise. Next we will talk about the intricacies of distributing funds in accordance with the law.

What does “retained earnings of an LLC” mean?

Retained (or accumulated) profit is the funds remaining after the enterprise has paid taxes, dividends, fines, and other obligatory payments.

Speaking about this concept, one cannot fail to mention net profit, because they are closely related. So, if a company does not have deferred tax liabilities and there were no dividends accrued during the year, these indicators turn out to be the same in annual reporting. The difference is that net profit is taken into account only in documents for the reporting period, and undistributed profit is also taken into account for the entire period of the LLC’s operation on the market.

Let’s say right away that in accounting and economics, the concepts of retained earnings of an LLC have different uses. For the accountant, we are talking about the result of the work, indicated in the reporting on account 84. In this case, the amount is not actually distributed, since the business owners must decide where the retained profits of the LLC can be sent from March 1 to June 30 of the next year. From an economic point of view, these funds are considered for the past year after the date we named, that is, after all deductions have been made.

There is an opinion that retained and net profit are identical concepts. Indeed, retained earnings are net profits that (as the name suggests) are not divided among the members/shareholders of the LLC. Net profit is that portion of income from sales and non-sales operations that remains in the company after taxes have been paid.

Let us remind you that only the owners have the right to decide where to spend the retained profits of the LLC. This issue is traditionally discussed at the annual meeting of the company's owners, after which the decision is formalized in the form of minutes drawn up based on the results of the general meeting of shareholders.

Typically, these funds are directed to:

• payment of dividends to participants/shareholders;
• repayment of losses;
• replenishment (creation) of reserve capital;
• other goals formulated by shareholders.

Retained earnings on the balance sheet are its liabilities. This indicator represents the actual debt of the company to its owners, because ideally there should be a distribution of retained earnings in the LLC, that is, between the participants of the company, and its investment in the development of the enterprise.

Let us repeat that the company is deprived of the right to dispose of these funds without a corresponding decision of the owners. If we are talking about a loss reflected in line 1370, it also refers to the liability side of the balance sheet. However, it has a negative value, so it is formatted with parentheses.

How is the retained profit of an LLC formed?

Regardless of whether the result from the sale of products or the provision of services is positive or negative, it is reflected in the active-passive account 90 “Sales”. The debit of the account shows the full cost, VAT and other costs, while the credit shows revenue. The final balance is transferred to account 99 “Profits and losses”.

The following entries must be made in the ledger:

• Dt90Kt99 – profit made;
• Dt99Kt90 – loss received.

The enterprise's operations, including operating and non-operating ones, must be displayed on account 91 “Other income and expenses”. These include:

1. Sale and rental of company assets.
2. Depreciation and revaluation of non-current assets.
3. Transactions with foreign currency.
4. Investments in shares of the business of other companies.
5. Liquidation and donation of property.
6. Income and expenses from transactions with securities.

The following wiring can be used:

• Dt91Kt99 – profit made;
• Dt99Kt91 – loss received.

The procedure for writing off the totals for accounts 90 and 91 is called balance sheet reformation. Let us say right away that by this term many economists understand the direct distribution of accumulated profit from account 84.

Similarly, the balance from accounts 76 “Extraordinary income and expenses” (for example, insurance compensation or losses from natural disasters) and 10 “Materials” (the cost of accepted inventory items unsuitable for use in production) is transferred to account 99.

An LLC's retained earnings may increase if accounting errors are discovered that cause expenses to be overstated. This also happens when dividends are not claimed by shareholders, provided that more than three years have passed from the date of their accrual. And, conversely, if errors were made in the reporting that caused the profit to be overstated, they reduce the accumulated income.

When conducting an economic analysis, we must not forget that retained earnings do not always consist of financial assets represented in cash or stored in a current account, because the markdown of principal amounts increases profit, but does not add money.

At the end of the reporting year, the chief accountant writes off the final balance (profit or loss) from account 99 to account 84 “Retained earnings”.

To do this, the following postings are made:

• Dt99Kt84 – upon receipt of profit;
• Dt84Kt99 – upon receipt of a loss.

Next, account 99 is reset to zero, and no transactions are carried out on it until the onset of the new year. Whereas the score 84 is considered active-passive. Before entering the total of the accumulated profit of an LLC into the report, the amount of income tax is subtracted from it; the latter may subsequently undergo changes.

If the organization intends to challenge the inspection decision

If the company does not agree with the inspection decision, it has the right to appeal it in arbitration court. Should an accountant reflect additional accruals, penalties and fines in accounting records without waiting for the outcome of the lawsuit?

Some experts think it should. And then, if the arbitration side takes the taxpayer’s side, the previously made adjustments and entries can be reversed.

However, we believe that there is no need to make any corrections until the final verdict is made, since they will greatly complicate the accounting. Moreover, courts of different levels are likely to come to opposite conclusions. In this case, the accountant would have to make and cancel adjustments several times. Let us add that we should not forget about the requirements of PBU 8/2010 “Estimated liabilities, contingent liabilities and contingent assets”. According to them, it is necessary to assess the likelihood of a court decision negative for the enterprise. If the probability is high, then in accounting you need to create an estimated liability for the debit of account 91 and the credit of account 96 (read more about this in the article “When and how to apply the new PBU on contingent and estimated liabilities and contingent assets”).

Elena Mavritskaya, leading expert at Online Accounting

Retained earnings of previous years in accounting

Retained earnings from previous years.

In this case, there are two possible accounting methods:

• cumulative;
• weather

The first option involves dividing the amount into the reporting and previous years without opening separate sub-accounts for account 84. That is, funds are accumulated on an accrual basis from the start of the LLC’s operation on the market. If a loss occurs, it is automatically covered by the profit of previous years. This approach is usually used in small businesses.

The second accounting option is distinguished by the use of separate sub-accounts for synthetic accounting of funds in different periods.

Various options for second-order accounts are allowed:

• account 84.1 – retained earnings of the reporting year;
• account 84.3 – retained earnings from previous years.

The amount received for previous years is, in any case, taken into account when calculating the results for the reporting year.

To obtain detailed information, information is required from sources such as:

• an explanatory note that may be attached to the balance sheet (does not apply to small enterprises);
• accounting entries for account 84;
• reporting for previous years.

If errors are found in the calculation of profit or loss for previous years, they must be taken into account in the financial result for the reporting year.

For the current year.

An LLC can open sub-accounts to account 84 if it is necessary to reflect funds for the current year in accounting:

• 1 – profit received;
• 2 – retained earnings;
• 3 – profit used.

To reflect the positive result obtained for the current year, use the posting Dt84.1Kt84.2. Postings involving account 84.3 mean that the retained earnings of the LLC participants were used for various purposes.

Regardless of the chosen accounting option, the last entry for the reporting year in the General Ledger will be a write-off from account 99 to account 84. Profit tax and interim dividends or payments (if any for the reporting period) have already been calculated from this amount.

The following wiring is done:

• Dt99Kt68 – tax calculation;
• Dt84Kt75 (or Kt70) - calculation of dividends (account 70 - bonuses for employees).

Some accountants highlight separate lines 1372 and 1372 in the balance sheet to separate the indicators of retained earnings for the reporting period and previous years.

Since the exclusive right to use the accumulated funds belongs to the owners of the company, it is convenient for them to highlight this financial indicator in the balance sheet for different years. We emphasize that it is impossible to fully distribute the accumulated profit of the past year without taking into account the previous results of the LLC’s work.

Important!

The value of the company's net assets after the transfer of retained earnings of the reporting year for the payment of dividends cannot become less than the size of the company's authorized capital even if there is a reserve fund. The caution applies to situations in which uncovered losses were recorded in the financial statements for previous years. Only the owners of the company can decide to cover last year’s losses from the accumulated funds of the reporting year.

The amounts remaining for previous years can be distributed by the owners both at the end of the year and at any other time. To do this, you need to hold a thematic meeting and approve the appropriate decision.

What can you spend the retained earnings of an LLC on?

The procedure for distribution of profits is established by the Laws on JSC and LLC. Thus, for accounting purposes, expense items of undistributed funds are specified only in an annotation to account 84 in the Chart of Accounts. There are no other references in accounting to possible ways of using this financial indicator. This means that unallocated funds can be used in such areas as:

• Reserve fund.

By law, JSCs are required to invest net profits in the formation of a reserve fund. Moreover, the size of the latter cannot be less than 5% of the authorized capital of the company. These funds are used to cover losses, repurchase public shares, and repay own bonds.

Unlike joint stock companies, LLCs have the opportunity to create a reserve fund on a voluntary basis. The size of the reserve, the amount of contributions made to it each year and the purposes for which this money can be directed are established by the Charter of the company.

The reserve fund is created by posting:

Debit 84 “Retained earnings (uncovered loss)” Credit 82 “Reserve capital”.

It is reflected in the balance sheet in section II “Capital and reserves” on page. As a result, part of the net profit is actually transferred to another item of capital. At the same time, the structure of the balance sheet improves, because the owners are deprived of the right to withdraw funds from the turnover of the enterprise in the amount of the formed fund. In other words, the reserve fund is a kind of financial safety net for the company.

• Dividends.

The amount not spent on the formation of the reserve fund can be used to pay dividends. Let us note that this is the most typical and frequently used method of spending such funds. Retained earnings are reduced when dividends are paid, and when dividends are paid, the company's assets are reduced.

When calculating dividends in accounting, the following entry is used:

Debit 84 “Retained earnings (uncovered loss)” Credit 75 “Settlements with founders.”

This entry allows you to reflect the payment of dividends in cash:

Debit 75 “Settlements with founders” Credit 51 “Current accounts”.

If cash issuance is preceded by withdrawal of funds from the current account, the following entry is used:

Debit 75 “Settlements with founders” Credit 50 “Cash”.

Let us note that the law does not prohibit the payment of dividends in both money and property. According to the norms of the Federal Tax Service of Russia, in the second case, VAT must be charged. However, judicial practice knows examples when arbitrators do not recognize the transfer of property through the payment of dividends as a sale, which means that this procedure is not subject to VAT.

Therefore, if a company does not include in the VAT base the value of property transferred as dividend payment, there is a high probability that such a position will have to be defended in court. But is it worth it?

The organization decides to pay dividends in cash, but to do this it will have to sell the property, subject to VAT on its sale, after which funds can be transferred to shareholders. Thus, in the absence of funds, in any case, you will have to pay VAT before making payments to the owners.

Another situation is possible when dividends are goods or fixed assets that are not subject to VAT. In this case, no tax is charged.

The transfer of property to pay off debt on dividend payments is reflected in accounting in accordance with the following standards:

When transferring goods or finished products:

When transferring a fixed asset:

Property tax, transport and land taxes

Amounts of arrears for property tax, transport or land tax identified during the audit reduce the taxable base for profit (subclause 1, clause 1, article 264 of the Tax Code of the Russian Federation). It happens that auditors themselves reflect this in their decision. But more often accountants have to create costs and recalculate the taxable base.

The easiest way is to include additional accrued amounts in the expenses of the current tax period. In accounting, they should also be shown in the costs of the current year as of the date of the inspection decision. There will be no difference between tax and accounting accounting.

Example 4 An on-site audit showed that the organization underestimated property tax in the amount of 55,000 rubles in 2010. and transport tax in the amount of 23,000 rubles. The accountant wrote off additional accruals as expenses in tax accounting and made the following entries: DEBIT 91 CREDIT 68 - 55,000 rubles. — additional property tax was assessed for 2010; DEBIT 91 CREDIT 68 – 23,000 rub. — additional transport tax was assessed for 2010.

Where else can you direct the retained profits of an LLC?

Often, answering the question of where to spend the retained profits of an LLC, the owners of the enterprise use these amounts to pay bonuses to staff, purchase fixed assets, provide financial assistance, and create consumption and savings funds. Are all of the above approaches correct?

Let's start by discussing the features of expenses at the expense of profit. The current laws on joint-stock companies and LLCs call the only possible payments from profits payments to the owners. We also note that the Ministry of Finance of the Russian Federation has repeatedly expressed this position: account 84 cannot be used to reflect various types of charitable and social expenses, including payments of material assistance and bonuses.

Costs for holding sports, entertainment, cultural and educational events, organizing recreation, etc., as well as transferring funds to charity from the position of the financial department, are considered other expenses and are recorded in account 91 “Other income and expenses.” In other words, the organization’s expenses do not include only the payment of dividends, while any other investment of assets is considered an expense of the current period.

Therefore, financial assistance, bonuses, and charity expenses can affect the company’s net profit, but only during the period when these expenses are incurred. Please note that they in no way relate to last year's net profit.

Let's summarize: all kinds of payments from net profit are illegal - the only exception is dividends.

Separately, it is worth mentioning the investment of net profit in the formation of a consumption fund. This approach is an echo of Soviet accounting rules, when it was customary to transfer money held in the bank separately from company funds into production development funds. These amounts were spent on the purchase of fixed assets. Today, this answer to the question of where to spend the retained profits of an LLC has lost its relevance.

Nowadays, a company's fixed assets are purchased from a current account by changing one asset to another (fixed asset). We emphasize that account 84 is not used in the postings. This means that the decision of business owners to direct funds to the development of production with the accountant’s entry in the account Debit 84, subaccount “Profit for distribution”, Credit 84 “Reserved profit” does not affect the final balance on the credit account 84.

This entry indicates that this year the owners refused to receive dividends without withdrawing money from circulation. As a result, the company was able to modernize its balance sheet structures, while simultaneously ensuring a more stable financial position. Since the final balance on the credit of account 84 does not change, there are no difficulties in the future distribution of profits by the owners when they are reflected in the company’s balance sheet as undistributed.

Increasing the authorized capital of an LLC using retained earnings

If the authorized capital is increased at the expense of the company’s property, its participant does not actually receive funds, goods (work, services) or any other property. Thus, this method of increasing the authorized capital of an LLC does not entail the emergence of income that should be subject to personal income tax.

Let us turn again to judicial practice: there are cases where courts have come to the conclusion that the participants of the company have no income associated with the increase in the nominal value of their shares. This conclusion was considered the only correct one until a company participant exercised any of his property rights, certified by the corresponding share in the authorized capital.

But it is worth noting that this is not the only possible conclusion. According to the position of the Ministry of Finance of the Russian Federation, when the authorized capital increases due to retained earnings, an individual receives income at the time of his state registration. These funds should be subject to personal income tax on a general basis (see, for example, Letter of the Ministry of Finance of the Russian Federation dated May 22, 2017 N 03-04-06/31351).

This position is supported by clause 19 of Art. 217 of the Tax Code of the Russian Federation, which provides for non-taxable income representing the difference between the new and original nominal value of a share in the authorized capital, obtained as a result of the revaluation of fixed assets. At the same time, in Art. 217 of the Tax Code of the Russian Federation, which defines the list of non-taxable personal income tax income, there is no income resulting from an increase in the nominal value of the participant’s share due to retained earnings of previous years.

If an LLC decides to follow the clarifications of the Ministry of Finance of the Russian Federation, it is considered a tax agent for personal income tax, whose responsibilities include: calculating the amount of personal income tax, withholding it from its income upon actual payment, transferring the corresponding amount to the budget (clauses 1, 2, 4 of Art. 226 of the Tax Code of the Russian Federation).

Since in this case the company does not pay the company member any money in the current year, withholding the calculated amount of personal income tax is impossible. Then, according to paragraph 5 of Art. 226 of the Tax Code of the Russian Federation, the enterprise must inform the taxpayer and the tax authority at the place of registration in writing about the impossibility of withholding the tax, the amount of the tax itself and the funds from which it was not withheld. This is given until March 1 of the year following the expired tax period in which the corresponding obligations arose. More detailed information on this topic can be obtained in the “Practical manual on personal income tax”.

When increasing the authorized capital of an LLC using funds from retained earnings, an entry is made in accounting to the debit of account 84 “Retained earnings (uncovered loss)” and the credit of account 80 “Authorized capital” after state registration of changes made to the organization’s Charter. This is required by the instructions for using the Chart of Accounts for accounting the financial and economic activities of organizations, approved by Order of the Ministry of Finance of the Russian Federation dated October 31, 2000 N 94n.

Algorithm for transferring losses in the accounting database

Currently there is no automatic transfer of losses in the programs. Therefore, we will transfer the loss using manual entries. Please note that the manual loss carry forward operation is carried out on December 31, after the close of the tax period, but before the balance sheet reformation.

Closing the tax period in which the loss was incurred

• We will forward the documents for December;
• We close the month, but skip the “balance sheet reform” operation. D 99.01 – K 90.09 The program must generate the posting independently.
• We create a manual loss transfer operation: D 97.21 – K 99.01 – the amount of loss carried forward to future periods. 97.21 “Other deferred expenses” 99.01 “Profits and losses from activities with the main tax system”
• For account D 97.21, we create the subaccount “Loss ... year” and configure this subaccount correctly. Type for NU - Losses of previous years Type of asset in the balance sheet - Other current assets Amount - Amount of loss Recognition of expenses - In a special order Write-off period - from XX.XX.XXXX

We are carrying out the “balance sheet reform” document

D 84.02 – K 99.01 D 90.01 – K 90.09

The program must generate the postings independently. The transfer of losses is carried out after the regulatory operation “Calculation of income tax”.

Write-off of losses from previous years

Now, in the new tax period, starting from the date specified in Subconto, if an organization makes a profit in tax accounting, it will automatically be reduced by part of the loss of the previous period or the entire amount. The write-off will take place monthly until the entire loss is written off. The operation can be seen in Menu – Closing the month – Write-off of losses from previous years. D 99.01 – K 97.21 – the amount of the written off part of the loss.

We reflect the transferred loss in the income tax return

On Sheet 02 of Appendix 4, you must indicate the year from which we are transferring the loss and the amount of the loss Total; the amount of the tax base; the amount of loss, but not more than 50% of the profit; the balance of the unwritten loss. We go to Sheet 02; the amount of the transferred loss should be automatically transferred to page 110.

—

Carrying forward a loss using an example

When calculating income tax for 2021, Mega LLC received a loss of 350,000 rubles. This loss can be carried forward to the future, forming from December 31, 2017. manual wiring operation D 97.21 – K 99.01 = 350,000 rub. In the 1st quarter of 2021, when calculating income tax for Mega LLC:

Income 1,200,000 rubles, Expenses 1,000,000 rubles.

The tax base was 200,000 rubles. (1,200,000 – 1,000,000), we can reduce it by the amount of loss, but not more than 50% of the profit. In our case, we reduce by 100,000 rubles. In the income tax return on Sheet 02, Appendix 4, we indicate: - the year from which we transfer the loss = 2021; — amount of loss Total = RUB 350,000; — tax base amount = 200,000 rubles; - amount of loss, but not more than 50% of profit = 100,000 rubles; — balance of unwritten loss = 250,000 rubles (350,000 – 100,000)

Deferred loss carryforward

There are situations when organizations do not want to reduce the tax base for losses from previous years in the current tax period, because carrying forward losses to the future is a right. But then a situation may arise when management needs to reduce the tax base, thereby reducing the tax.

Important! — If you do not apply PBU 18/02 and are sure that you will never carry forward the resulting loss, then you do not have to create a manual “Loss Transfer” operation at the end of the year. — If you apply PBU 18/02, then this operation will have to be created, otherwise the program will not allow you to close the first month of the next year.

In this case, we still recommend creating an operation to transfer the loss, but then without indicating the start date for writing off this loss.

How to do this: In a manual operation to transfer a loss, for account 97.21, we create a subaccount “Loss ... year” Type for NU - Losses of previous years Type of asset in the balance sheet - Other current assets Amount - Amount of loss Recognition of expenses - In a special order Write-off period - LEAVE LINE IS EMPTY Later, when you decide to reduce your tax base by the amount of the loss, you will need to indicate in the “write-off period” field the first date of the tax period from which you want to start writing off.

We suspend the write-off of losses for a while

It happens that an organization has written off a loss over a certain period of time, but this year does not want to reduce the tax profit for the loss of previous years and needs to stop writing off the loss for a while.

In this case, it is necessary to create a transaction entered manually with the posting: D 97.21 (sub-account “Balance of loss 2017”) - K 97.21 (sub-account “Loss 2017”) - the amount of the balance of the loss not transferred. We set up the subconto “Remaining loss 2017” as described above, i.e. We leave the dates of the write-off period blank.

Then, when write-off is required again, it will be necessary to post back:

D 97.21 (sub-account “Loss 2017”) - K 97.21 (sub-account “Balance of loss 2017”) - the amount of the balance of the loss not transferred.

What to do with retained earnings when liquidating an LLC

If a company closes, its profits include all funds reflected in the liquidation or zero balance sheet - this document must be submitted to the Federal Tax Service.

The bulk of the funds should be used to fully/partially repay debts to creditors and pay salaries and all severance benefits to staff that they are entitled to, in accordance with labor legislation.

When closing an LLC, the remaining funds from retained earnings are paid as follows:

• payment of retained earnings is made to the founder of the LLC if he is the only participant in the liquidation process;
• in the absence of money and the company retains property, the latter, in accordance with the norms of the current legislation and after all priority procedures, goes to the only participant in the process;
• the residual funds of the LLC are distributed in equal shares among the participants in the process, if there are more than one.

According to the company's charter, assets are considered property assets, while liabilities include the authorized capital. The LLC structure includes non-current and current assets.

Profit is considered undistributed only after the completion of payments determined by a court decision. If you decide to liquidate an LLC, you need to know the sequence for dividing profits:

• First of all.
  Paid to the founders if they were accrued their share, but no payment was made.
• Second stage.
  LLC funds are distributed among the remaining owners in accordance with their shares in the authorized capital.

Actions of the second stage cannot precede the actions of the first, as this will be equivalent to a violation of the law. Please note that the issuance of shares to participants is permitted in any form: in kind, in cash or in the form of another equivalent.

If a legal entity has one owner, all funds of the LLC are transferred to him - this requires a decision of the liquidation commission created to liquidate the company.

The legislation establishes certain time frames for receiving dividends upon liquidation of an enterprise:

• standard – after 60 days;
• by agreement.

If funds cannot be received on time, the right to payments continues for another three years.

Top 3 articles that will be useful to every manager:

• Financial control at the enterprise
• Net profitability of the enterprise
• How to build a company's financial structure

Retained earnings upon liquidation of an LLC with a single participant

When all payments to creditors are completed, there may be undistributed funds on the balance sheet of the closing company. Therefore, the question immediately arises as to whether it is possible to close an LLC with retained earnings. These amounts must be paid to a single participant.

However, it is necessary to begin with the payment of distributed profits, if any remain. After this, the undistributed amount is paid - if possible, it is done in cash. If for some reason this option turns out to be unacceptable, the sole participant of the company is given the property of the LLC.

That is, the property of the liquidated organization is listed as an asset on the balance sheet, and retained earnings and authorized capital are listed as liabilities.

In order to terminate its activities, the enterprise submits a zero liquidation balance sheet to the Federal Tax Service. This will not be possible without issuing retained earnings to the sole participant in the form of LLC property.

If the value of the property received by the participant turns out to be less than that specified in the authorized capital, these funds are not subject to VAT, and an 18% fee is charged on the balance.

Payment of dividends in shares for the past year

In addition to the standard distribution of profits, the JSC has the right to issue dividends in shares. This option is possible if management wants to settle accounts with shareholders, but does not want to spend money on it.

For example, if the Board of Directors approves a 30% stock dividend, then each shareholder will receive 3 shares for every 10 shares held.

As a result of the transaction, neither the shareholder's share nor the total value of his shares changes, but the price of each share decreases.