Commodity exchange has a long history, and commodity economy was greatly inspired as early as the Song Dynasty. With the diversified development of modern economy, more and more economies exist in the form of standardized companies. In the company's operation, you have income when you pay, and the rest of the income is net profit. According to the relevant national laws and regulations, the company's retained earnings are also very knowledgeable. Do you know what the company law includes about retained earnings? 1. The concept of retained earnings refers to the net profit retained by an enterprise. The net profit retained by an enterprise can be divided into two categories according to whether it is designated or not: first, the retained income for designated purposes, that is, surplus reserve; The second is retained earnings that are not specified for use, that is, undistributed profits. Therefore, the accounting of retained earnings is the accounting of surplus reserves and undistributed profits. Second, the concept of surplus reserve surplus reserve refers to all kinds of accumulated funds extracted from net profit by enterprises in accordance with regulations. It comes from the accumulation of production and business activities of enterprises, and belongs to retained earnings with specific purposes. The profits realized by an enterprise must first be extracted from the surplus reserve in accordance with the relevant regulations, and then they can be distributed among investors, which is a remarkable feature that distinguishes a company-based enterprise from an unincorporated enterprise. Because as an enterprise with limited liability for debt, it is obviously not enough to stipulate only the minimum capital contribution, and it is also necessary to limit the distribution of profits, forcing enterprises to withdraw a certain amount of surplus reserves before paying profits to investors, accumulating funds for the expansion and reproduction of enterprises, and providing financial guarantee for safeguarding the rights and interests of creditors and coping with operational risks. Three. Classification of surplus reserves The surplus reserves of companies and enterprises are divided into statutory surplus reserves and arbitrary surplus reserves. 1. Statutory surplus reserve Statutory surplus reserve refers to the accumulated funds withdrawn from the after-tax net profit of an enterprise and left in the enterprise in accordance with the provisions of the Company Law. According to the provisions of the Company Law, joint stock limited companies and limited liability companies shall draw legal surplus reserves at 10% of the after-tax profits of the current year, but when the accumulated amount of legal surplus reserves exceeds 50% of the registered capital of the company, they may not draw any more. 2. Arbitrary surplus reserve Any surplus reserve refers to the accumulated funds drawn from the after-tax net profit by the enterprise according to the resolution of the shareholders' meeting. Arbitrary surplus reserve is a part of retained earnings voluntarily withdrawn by the company, and it is the accumulated funds that have been determined to be used in retained earnings. The amount should be determined according to the actual situation of the enterprise, and the proportion of withdrawal should be decided by the shareholders' meeting rather than forced by law. Four. Use of surplus reserve The statutory surplus reserve and arbitrary surplus reserve extracted by a company-owned enterprise have three uses: 1. To make up for the losses incurred by a loss-making enterprise, the enterprise shall make up for it by itself. Enterprises can use the pre-tax profits of the following years (with a term of five years) to make up for the losses after five years. If the enterprise can't make up the loss completely after five years, it must make up for it with the after-tax profit of the following year or the extracted surplus reserve. When an enterprise uses surplus reserves to make up losses, it shall be decided by the board of directors of the company and approved by the shareholders' meeting. 2. When the surplus reserve is converted into share capital, the enterprise can only convert the statutory surplus reserve and any surplus reserve into paid-in capital or share capital after the resolution of the shareholders' meeting is approved and the capital increase formalities are handled according to the regulations. When the surplus reserve is actually converted into capital, it shall be carried forward according to the original shareholding ratio of shareholders. However, after the statutory reserve fund is converted into capital, the retained reserve fund shall not be less than 25% of the registered capital of the company before the transfer. 3. Expanding the surplus balance of enterprise production and operation is actually an integral part of enterprise owners' equity, indicating a source of enterprise production and operation funds. The extraction of surplus reserve is not to extract this part of the funds from the enterprise's capital turnover process alone, but to use it for the production and operation of the enterprise like the funds formed from other sources of the enterprise. V. Accounting of surplus reserves In order to reflect and supervise the extraction and use of surplus reserves, enterprises should set up a general classification of "surplus reserves". Belongs to the owner's equity account. The credit of this course reflects the extraction of surplus reserve, and the debit reflects the extraction purpose of surplus reserve; The credit balance at the end of the period reflects the unused surplus reserve balance drawn by the enterprise. This course should be accounted for in detail according to the subjects of "statutory surplus reserve" and "arbitrary surplus reserve" respectively. Foreign-invested enterprises should also set up "reserve fund" and "enterprise development fund" respectively for detailed accounting. 1. Accounting treatment of extracting surplus reserve. Because the process of drawing surplus reserves belongs to the distribution process of net profit, it is accounted for through the "profit distribution" account. When an enterprise withdraws statutory surplus reserve and arbitrary surplus reserve according to regulations, it shall debit the subjects of "profit distribution-withdrawal of statutory surplus reserve" and "profit distribution-withdrawal of arbitrary surplus reserve" and credit the subjects of "surplus reserve-statutory surplus reserve" and "surplus reserve-arbitrary surplus reserve". The reserve fund, enterprise development fund, employee reward and welfare fund withdrawn by foreign-invested enterprises according to regulations shall be debited to the subjects of profit distribution-withdrawal of reserve fund, profit distribution-withdrawal of enterprise development fund and profit distribution-withdrawal of employee welfare fund, and credited to surplus reserve fund, surplus reserve fund-enterprise development fund to pay employees' salaries. 2. Accounting treatment methods of surplus reserves Because of the different uses of surplus reserves, their accounting treatment methods are also different. (1) Accounting treatment method to cover losses. The losses incurred by an enterprise may be made up by statutory and arbitrary surplus reserves upon the proposal of the board of directors and the approval of the shareholders' meeting. Because the uncompensated loss of an enterprise is represented by the debit balance of the profit distribution account, when the loss is compensated by surplus reserve, the surplus reserve used to make up the loss should be transferred to the profit distribution account first, and then the loss is compensated by the profit distribution account. That is, when the statutory and arbitrary surplus reserves are used to make up the losses, the subjects of "surplus reserve-statutory surplus reserve" and "surplus reserve-arbitrary surplus reserve" are debited and the subjects of "profit distribution-surplus reserve to make up the losses" are credited. (2) Accounting treatment of capitalization. After the resolution of the shareholders' meeting and the formalities for capital increase, the enterprise may convert the statutory and arbitrary surplus reserve into capital or equity. When an enterprise converts surplus reserve into capital, it shall debit "surplus reserve-statutory surplus reserve" and "surplus reserve-arbitrary surplus reserve" and credit "paid-in capital (or share capital)" according to the actual amount. When a joint stock limited company distributes new shares by surplus reserve after the resolution of the shareholders' meeting, it shall debit the subjects of "surplus reserve-statutory surplus reserve" and "surplus reserve-arbitrary surplus reserve" and credit the subjects of "share capital" according to the amount calculated by the new shares. The accounting of undistributed profit of intransitive verb refers to the remaining profit retained by the enterprise for future annual distribution, and is also an integral part of the owner's equity of the enterprise. Compared with other parts of owners' equity, enterprises have greater autonomy in the use and distribution of undistributed profits. In terms of quantity, undistributed profit is the balance of the profit distributed at the beginning plus the after-tax profit realized in the current period, minus the extracted surplus reserve and the distributed profit. This amount is the accumulated balance, reflecting the accumulated undistributed profit up to this year. This amount is expressed as the credit balance of the "Profit Distribution-Undistributed Profit" account, and if the account is the debit balance, it is the accumulated amount of unrecovered losses over the years. The undistributed profit (or uncompensated loss) of an enterprise shall be reflected separately in the owner's equity item of the balance sheet. To sum up, the company law on retained earnings includes surplus reserves and undistributed profits. The net profit of the two methods is also very different in treatment methods. From the above, it can be seen that undistributed profits have greater autonomy in the use and distribution of the company, and the accounting of surplus reserves reflects the company's usual tendency to use and distribute surplus reserves.