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(116)-PROFIT AND LOSS RESERVES

Tuesday, February 23, 2010

Profit and Loss Reserves

The most significant non-statutory reserve is variously described as:
  • Revenue reserve
  • Retained profits
  • Retained earnings
  • Undistributed profits
  • Profit and loss account
  • Un-appropriated profits


These are profits earned by the company and not appropriated by dividends, taxation or other transfer to another reserves account.


Provided that a company is earning profits, this reserve generally increases from year to year, as most companies do not distribute all their profits as dividends. Dividends can be paid from it: even if a loss is made in one particular year, a dividend can be paid from previous years’ retained profits.


Very occasionally, you might come across a debt balance on the profit and loss account. This would indicate that the company has a accumulated losses.

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