Retained Earnings refer to the net profit accumulated by the company over the years, which has not been distributed to shareholders in cash or other assets and turned into capital or capital reserve; Or accumulated losses over the years have not been made up by capital reserve. Retained earnings is a subject of shareholders' equity that links the income statement with the balance sheet.

retained earnings = net profit+(or net loss minus) initial retained earnings-dividends distributed to shareholders.

the allocation of retained earnings refers to the restriction or freezing of retained earnings due to legal provisions or special purposes or reasons, so that the company cannot distribute dividends with assets, resulting in the reduction of retained earnings. There are several reasons for the allocation of retained earnings:

restrictions imposed by laws

Article 237 of China's company law stipulates: "After paying all taxes, a company should first set aside 1% as the statutory surplus reserve, except when the statutory surplus reserve has reached the total capital."

the contract stipulates that

when a company issues corporate bonds, in order to protect creditors, its terms of issue may stipulate that the company should promote the sinking fund every year and limit the distribution of surplus, and no dividend can be distributed before the corporate bonds are repaid, which is the sinking fund preparation.

there are expected or possible losses

the company may also allocate retained earnings for legal proceedings, unfavorable contractual obligations and estimated losses of other contingencies.

Guarantee the working capital

For example, establish "working capital preparation" or "plant expansion preparation".

* When the reasons for freezing or restriction are eliminated, the restriction can be lifted and dividends can still be paid.

* FASB prohibits the provision of such loss reserves and does not need to disclose such risks if the cost is estimated by installments, such as

self-insurance expenses

self-insurance reserves

.