Reserve funds and enterprise development funds drawn by foreign-invested enterprises according to a certain proportion of their net profits, as well as the investment returned by Chinese-foreign cooperative enterprises to investors with profits according to regulations during the cooperation period, are also used as surplus reserves, and detailed subjects are set up under the subject of "surplus reserve".
General surplus reserve is divided into two types: one is statutory surplus reserve. The statutory surplus reserve of listed companies shall be drawn at 10% of after-tax profits, and shall not be drawn when the cumulative amount of statutory surplus reserve reaches 50% of the registered capital. The second is the discretionary surplus reserve. Arbitrary surplus reserve is mainly drawn by listed companies according to the resolution of shareholders' meeting. The difference between statutory surplus reserve and arbitrary surplus reserve lies in the different basis of their respective provision. The former is extracted according to national laws or administrative regulations; The latter is extracted by the company itself.
The company's surplus reserve can be mainly used in the following two aspects:
(1) is used to make up for the loss. When the company loses money, it shall make up for it by itself. There are three main ways to make up for the loss: one is to make up for it with the pre-tax profit of the following year. According to the current system, when a company loses money, it can make up for it with the pre-tax profit realized in the next five years, that is, the period for making up for the loss with the pre-tax profit is five years. The second is to make up for it with after-tax profits in the following years. If the losses incurred by the company have not been fully recovered in five years, the profits after income tax shall be used to recover the unrecovered losses. The third is to use surplus reserves to make up for losses. When the company uses the extracted surplus reserve to make up the losses, it shall be proposed by the board of directors of the company and approved by the shareholders' meeting.
(2) Capitalization, the so-called "red shares". When the company converts surplus reserve into capital, it must be approved by the shareholders' meeting. When the surplus reserve is actually converted into capital, it shall be carried forward according to the original shareholding ratio of shareholders. When the surplus reserve is converted into share capital, the surplus reserve retained after the conversion shall not be less than 25% of the registered capital.
Accounting of surplus reserve
When an enterprise withdraws surplus reserves according to regulations, it shall withdraw the amount of surplus reserves.
Debit: Profit Distribution-Withdrawal of Surplus Reserve
Loan: surplus reserve-general surplus reserve
When an enterprise uses surplus reserves to make up losses, the amount of losses made up on time in the current period.
Borrow: surplus reserve-general surplus reserve
Commodities: Profit Distribution-Surplus Reserve Transferred to Increase
When an enterprise uses the extracted surplus reserve to increase capital, it shall increase capital according to the approved amount.
Borrow: surplus reserve-general surplus reserve
Loan: paid-in capital or equity.