Retained profit is easy!

The purpose of any economic activity is retained earnings. This is quite natural, because its availability means an increase in the company's own capital, which makes it possible to make more and more large transactions and, accordingly, leads to an increase in revenues in the future.

Undistributed profit is the profit of the company that was not 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 of the debit and the credit of this account.

The loan reflects the net profit of the enterprise, and the debit - dividends, these two articles mainly affect how the retained earnings will be. This, however, does not at all mean that it is an asset of the company, and its accumulation rather indicates that the funds received as a result of profitable activity were reinvested in production.

Let's consider an example in which the enterprise 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 draw up 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 amounted to 400 thousand rubles. In the future, the shareholders' meeting can choose independently how to dispose of it for the benefit of the enterprise.

As can be seen from the calculation, 400 thousand rubles. - this is a positive 84 "Retained earnings" at the end of 2012. This indicates that the assets of the enterprise as a whole have increased, but the proportionality of the increase in their individual species remains questionable. Negative balance on this account usually happens when the company's losses and dividend payments exceed the profit earned from operating activities. In this case, the shareholders' meeting usually makes a decision to reduce the share capital to overcome the deficit. The negative balance on this account is called the debit balance, and the positive one is called the credit balance, since the 84th account is active-passive in its essence.

Please note that all postings on account 84 are related to the distribution of profits by decision of the founders and participants in the management of the organization. In fact, the undistributed profit of the enterprise is the balance on 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 received net profit is distributed for payment of dividends, improvement of production conditions, replenishment of reserve fund and liquidation of losses of previous years.