1. Overview.
Surplus reserve refers to the accumulated funds withdrawn from the after-tax profits of the enterprise in accordance with the regulations, which are mainly used to make up for losses and increase share capital. When an enterprise incurs a loss, it can use the surplus reserve to make up for it in accordance with the regulations. The accounting treatment of surplus reserve to cover loss consists of two steps: the surplus reserve is withdrawn and then used to cover the loss.
2. Accounting entries.
1.Withdrawal of surplus reserves.
Borrow: Profit distribution - withdrawal of statutory surplus reserve.
Credit: Surplus Reserve – Statutory Surplus Reserve.
2.Surplus reserves cover losses.
Borrow: Surplus Reserve - Statutory Surplus Reserve.
Credit: Profit distribution - surplus reserve to cover losses.
3. Precautions.
1.The basis for withdrawing surplus reserves is after-tax profits, not registered capital. Therefore, if there is a change in the registered capital of the enterprise, it will not affect the withdrawal base of the surplus reserve.
2.The surplus reserve can only be used to cover losses and increase share capital, and cannot be used for other purposes. Therefore, when using surplus reserves to cover losses, it is necessary to strictly comply with the relevant regulations.
3.Surplus reserve generally consists of two secondary subjects: statutory surplus reserve and general surplus reserve. According to the current tax law, the proportion of statutory surplus reserve withdrawal of listed companies is 10% of the after-tax profit, and it can no longer be withdrawn when the cumulative withdrawal amount has reached 50% of the registered capital. The standard for the withdrawal of arbitrary surplus reserve shall be determined by the resolution of the general meeting of shareholders of the listed company. Therefore, the difference between statutory surplus reserve and arbitrary surplus reserve lies in the different basis of accrual, the former is statutory, and the latter is self-determined.
4.When the surplus reserve makes up for the loss, it shall be made up in the prescribed order. The losses of previous years are covered first, and then the statutory surplus reserve. When making up for it, it should first make up for ordinary losses and then make up for special losses.
5.When using surplus reserve to make up for losses, a certain proportion of surplus reserve should be retained to maintain the sustainable development of the enterprise. The specific retention ratio is determined according to the actual situation of the enterprise, but generally not less than 25% of the registered capital.
6.If the enterprise has no profit in the current year or the surplus reserve is insufficient to cover the loss, it shall announce to the shareholders the cessation of dividend distribution in accordance with the provisions and deal with it in accordance with the relevant regulations. At the same time, the enterprise should disclose the uncovered losses in the notes to the accounting statements.
7.If an enterprise uses the surplus reserve to increase its share capital, it shall go through the procedures for increasing the capital in accordance with the relevant regulations and adjust the paid-in capital and share capital accounts. At the same time, the enterprise should also disclose the conversion of share capital in the notes to the accounting statements.
8.When carrying out accounting treatment, the relevant accounting standards and accounting systems should be strictly observed to ensure the quality and accuracy of accounting information. Controversy Project