Skip to Content
avatar image
Former Member

reg retained earnings

Hi,

i am new to FI/CO, can any please guide me, what is real use of RETAINED EARNINGS ACCOUNT. i know that it is used to maintain the year end balance of P&L account, but i want to know still more.

regards.

venkat.

Add comment
10|10000 characters needed characters exceeded

  • Get RSS Feed

5 Answers

  • Best Answer
    avatar image
    Former Member
    Oct 10, 2007 at 06:51 AM

    Hi

    When a company generates a profit, management has one of two choices:

    they can either pay it out to shareholders as a cash dividend,

    or retain the earnings and reinvest them in the business.

    When the executives decide that earnings should be retained, they have to account for them on the balance sheet under Shareholder Equity. This allows investors to see how much money has been put into the business over the years. Once you learn to read the income statement, you can use the retained earnings figure to make a decision on how wisely management is deploying and investing the shareholder's money. If you notice a company is plowing all of its earnings back into itself and isn't experiencing exceptionally high growth, you can be sure that the stock holders would be better served if the board of directors declared a dividend.

    Retained earnings=Net profit(P&L account)-Reserves-Dividend

    Trial balance,Profit and loss accont,Balance sheet were the key financial statements. Retained earings is an account using which P&L balance is carried to Balance sheet.

    Thanks

    Usha

    Add comment
    10|10000 characters needed characters exceeded

  • avatar image
    Former Member
    Oct 10, 2007 at 06:16 AM

    hi Venkat,

    Retained earning account is used to profit or loss from P&L satement accounts.

    Each P&L account is assigned to a retained earnings account via a key and this how transactions are updated in RE account.

    We use different retained earnings accounts in an international corporate group to meet various requirements for preparing financial statements.Chk the link

    http://help.sap.com/erp2005_ehp_01/helpdata/en/c7/a88d2243dd11d182b30000e829fbfe/frameset.htm

    You can have multiple retained earnings account. It depends on the business requirement. In transaction code OB53 you can enter sa many retaines earnings accounts for Your Chart of Accounts. At the time of creating the the P/L account you in the Type/Desc tab you will find a field for detailed control for PL statement Account type. Here you will find all the retained earning accounts you have entered at the tome of OB53. You can choose which retained earning account to choose.

    Retained aeranings are nothing but accumulated Net income in Balance sheet.

    Net income is nothing but proft for a period in a P&L account. At the end of the year the each profit and loss account will be rolled into retained earnings account and the balance become zero. The retained earnings account will be the cumulative net of P&L items which is a BS account. Before u create the CoA u need to designate one account as retained earning a/c and then only u will be allowed to create other accounts.

    Assign points if useful

    Ranjit

    Add comment
    10|10000 characters needed characters exceeded

    • Hi,

      If u want to seggreate the retained earnings for different purposes, u can go for different retained accounts

      E.g. when many compnay codes share the same CoA, but with diff local accounts, and u need to assign the retained accounts separately.

      Thanks,

      sridevi

  • avatar image
    Former Member
    Oct 10, 2007 at 06:19 AM

    The retained earnings account on the balance sheet is said to represent an "accumulation of earnings" since net profits and losses are added/subtracted from the account from period to period.

    The general equation can be expressed as following:

    Ending Retained Earnings = Beginning Retained Earnings + Investments & minus; Dividends Paid + Net Income

    Add comment
    10|10000 characters needed characters exceeded

  • avatar image
    Former Member
    Oct 10, 2007 at 08:16 AM

    Hi

    For example take a case of Depreciation.

    Suppose my company is located in India & Corporate office at US. FOr reporting purpose we probably want diffirent depreciation to taken into consideration in Balance sheet reporting.

    In this case we can use different Retained earning as per requirement (Reporting).

    Thanks

    Colin Thomas

    Add comment
    10|10000 characters needed characters exceeded

  • avatar image
    Former Member
    Oct 10, 2007 at 08:37 AM

    To say in simple it is the difference between Debit and Credit items, In P&L u mention some items at debit side and some items at Crdit side, then, think what to be done with the difference of these two. The answer is, it is carried to Balance Sheet through Retained Earnings, and this Retained Earning Account is notthing but Net Profit gained or Net loss.

    Satish

    Add comment
    10|10000 characters needed characters exceeded