What is Capital Reserve?How to standardize financial accounting?How to use it rationally in enterprise management?
Capital reserve refers to the share of investors received by an enterprise in excess of its share of the registered capital of the enterprise, as well as the gains and losses directly included in the owner's equity. It is a part of the ownership equity of the enterprise, ** accumulated in addition to the company's profits, including capital premiums, corporate profits, donations received, state grants and subsidies, equity investment provisions, etc.
In financial accounting, a "capital reserve" account should be set up to reflect the increase or decrease of capital reserve. The increase in capital reserve is credited to this account, and the decrease in capital reserve is debited to this account, and the balance of this account is credited, reflecting the actual capital reserve of the enterprise. The account should be set up according to the category of capital reserve to carry out detailed accounting. In general, the capital reserve should set up detailed accounts such as "capital (or equity) premium" and "other capital reserve".
In enterprise management, capital reserves can be used rationally. For example:
Conversion of share capital
Capital reserve can be used to increase the company's registered capital by converting capital reserve into share capital. This operation generally does not involve cash flow, but it can increase the company's net worth.
Invest or reinvest
Capital reserves can sometimes also be used for specific investment projects, such as new product development, technological transformation, market expansion, etc., to further promote the company's development.
Improve the financial structure
Enterprises can use capital reserves to restructure debts, improve financial structure, and reduce financial risks.
Dividends to shareholders
According to local laws, capital reserves may be used to distribute dividends to shareholders, but generally not in the form of cash, but in the form of **.
Raise your credit rating
By using capital reserves wisely, companies can improve their net worth, which can lead to better credit ratings and lower borrowing costs when obtaining loans or debt financing.
It should be noted that the use of capital reserve is restricted by law and the articles of association, and its main purpose is to enhance the capital structure and financial stability of the enterprise, rather than directly for daily operating profits and losses or cash dividends. Capital reserves cannot cover the losses of enterprises, nor can they distribute cash dividends. When the capital reserve is converted into capital, it should be carried forward according to the original shareholding ratio of the shareholders. The capital reserve retained after carry-over shall not make up for the losses of the enterprise.