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.