Retained Earnings Account

[Nivas_Reddy_D]

Retained Earnings Account:

At the end of the fiscal year, We need to carry forward the balance of the p\L account to the retained earnings accounts( BS General Reserve Accounts).

The profit & loss statement account type it represents the retained earnings account.

The retained earnings account can also be called as net profit/net losses carry forward to be the part of the general reserves account.

The profit & loss statement account type can be defined similar to variant.

We can define more than one profit &loss statement account type per COA.

If we can define the more than one profit &loss statements account type for chart of account then we need to assign profit & loss statement account type in the G/L master for every profit &loss account.

If we define single profit &loss statement account type for COA , in this case all profit & loss accounts by default assign to the profit & loss statement account type.

Not required to assign manually in the G/L account.

The profit & loss account need to be defined for each COA wise.

Profit & loss statement account type can be defined maximum upto 2 digit code.

We can use more than one retained earnings GL account per Chart of Account if you are using the Account Approach to address the different Accounting Principles.

Examples:

X1        P&L statement Account Type for Common Accounts

X2        P&L statement Account Type for USGAP

X3        P&L statement Account Type for IFRSGAP

X4        P&L statement Account Type for IAS GAP

Note:

Not Required Multiple Retained earning accounts per Chart of Accounts if you are following Ledger Approach.

Why multiple retained earnings account required ?

We have two approaches to address the different accounting principle requirements

Approach1=======> Account Approach         Approach2=========> Ledger Approach

Approach1=======> Account Approach:

We will open few additional GL accounts in addition to common GL accounts for specific to accounting principle wise for those areas need to treat differently

IFRS	COMMON GL	USGAP
25 GL accounts for specific to IFRS	300 Common GL accounts	22 GL accounts for specific to USGAP

FS(Financial Statement) for IFRS =IFRS specific GL accounts + Common GL accounts

FS(Financial Statement) for USGAP =USGAP specific GL accounts + Common GL accounts

In Account approach , We will maintain more than one Retained earnings Accounts

In the above example ,

X1 ==> Retained earning accounts -common ==> Assigned to all common P&L GL accounts

X2 ==> Retained earning accounts -IFRS Accounts ==> Assigned to IFRS specific GL accounts

X3 ==> Retained earning accounts -USGAP Accounts ==> Assigned to USGAP specific GL accounts

Approach2=========> Ledger Approach:

Each Ledger represents the one set of Books

Ledger ==>L2===========> USGAP

Ledger ==>L1===========> IFRS

In the ledger approach , not required to maintain additional GL accounts for specific to accounting principle wise

Hence not required multiple retained earnings GL accounts ====> One retained earnings GL account is sufficient

Create Retained Earnings Account:

Need to be Defined P&L statement account type per Each Chart of Account wise

Operational COA(RELP)

X1           P&L Statement A/ Type for Op COA ( RELP )

Grp COA (RELG)

G1          P&L Statement A/ Type for Grp COA ( RELG )

Country COA (RELC)

N1         P&L Statement A/ Type for Country COA ( RELC )

SPRO -> SAP Reference IMG -> Financial Accounting -> General Ledger Accounting -> Master Data -> G/L Accounts -> Preparations -> Define Retained Earnings Accounts (OB53)

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