RETAINED EARNINGS (ACCUMULATED PROFITS)

Closing the books: 1. Close all nominal accounts with debit and credit balances to income summary. 2. Close income summary to: If Net Income Income Summary xx Accumulated Profits xx If Net Loss Accumulated Profits Income Summary

xx xx

ACCUMULAT ! P"#$ITS Accumulated %rofits&"etained arnin's refers to accumulated earnin's of the cor%oration Accumulated %rofits&"etained arnin's is a cor%oration(s cumulati)e earnin's since the cor%oration was formed minus any net loss incurred or any di)idends declared . In other words* this refers to the cor%oration(s cumulati)e earnin's that ha)e not been distributed to its shareholders. !ebit balance in "etained arnin's&Accumulated Profits is called !eficit or Accumulated Losses Accumulated %rofits is classified into Una%%ro%riated or $ree and A%%ro%ro%riated. o Una%%ro%riated or $ree Accumulated %rofits is a)ailable for di)idend distribution. o A%%ro%riated %ortion is set aside for a s%ecific %ur%ose of the cor%oration. Appropriation of accumulated profits may be for: a. le'al a%%ro%riation + if own shares of stoc, is ac-uired* sufficient retained earnin's is re-uired. b. contractual a%%ro%riation + to insure e)entual %ayment of bonds and %referred stoc,. c. )oluntary or discretionary a%%ro%riation+ discretion on the %art of the mana'ement. Appropriations may be for: Treasury shares Plant x%ansion Contin'encies Sin,in' $und /ournal ntry for a%%ro%riation of Accumulated Profits: Accumulated profits xx AP- Appropriated for Treasury hares xx

If the cor%oration is throu'h with the a%%ro%riation* a re)ersal of entry %re)iously %re%ared is needed. +for ex. Treasury share was already sold. AP- Appropriated for Treasury hares s Accumulated profits xx xx

Classroom Exercises
1. Assume the following 20x4 P10,000 net income 20x5 5,000 net loss 20x6 20,000 net income 20x7 18,000 dividends declared 20x8 25,000 net income Assume that there is no other transaction which affected accumulated rofits! "om ute the #alance of the accumulated rofits account as of $ecem#er %1, 2011! 2. Assume the following 20x5 P10,000 net income 20x6 8,000 net loss 20x7 5,000 net loss 20x8 6,000 net loss Assume that there is no other transaction which affected accumulated rofits! "om ute the #alance of the accumulated rofits account as of $ecem#er %1, 2011!

!I"I!#N!
!i$idends- distribution of cor%orate %rofits to shareholders.
SHARES ENTITLED TO DIVIDENDS 1. issued par value shares 2. issued n !par value shares 3. su"s#ri"ed par value shares SHARES NOT ENTITLED TO DIVIDENDS 1. unissued shares 2. su"s#ri"ed n !par value shares 3. $reasur% shares TYPES OF DIVIDENDS

1. 2. 3. 4.

#ash dividends share dividends (" nus issue) pr per$% dividends s#rip dividends

SIGNIFICANT DATES TO REMEMBER IN DIVIDENDS DISTRIBUTION 1. Da$e & De#lara$i n 2. Da$e & Re# rd 3. Da$e & Pa%'en$(Dis$ri"u$i n

Ty%es of di)idends Cash di)idend 0 distribution of cor%orate %rofits in form of cash. + sufficient cash is needed and a)ailable $ree retained earnin's. o Cash di)idends maybe distributed as follows: certain amount of %eso %er share. certain %ercent of %ar or stated )alue. P"#$#"MA 1T"2 !ate of !eclaration: Accumulated %rofits xx Cash di)idends %ayable3Preference Cash di)idends %ayable3 #rdinary !ate of %ecord 1o entry !ate of Payment Cash di)idends %ayable3Preference xx Cash di)idends %ayable 3#rdinary xx Cash xx xx

xx

Share di)idend +4onus Issue. 0 distribution of cor%orate %rofits in form of cor%oration(s own shares of stoc,. +a)ailable unissued shares and free retained earnin's are re-uired.. T&o types: 1. Small share di)idend i. Less than 567 ii. Accumulated %rofits is recorded at mar,et )alue. 2. Lar'e share di)idend i. 567 or more ii. Accumulated %rofits is recorded at %ar )alue.

PROFORMA ENTRY '( mall share di$idend

!ate of !eclaration: Accumulated %rofits +at mar,et )alue. Share di)idends distributable3Preference +at %ar. Share di)idends distributable3#rdinary+at %ar. Share Premium3 Preference Share !i)idends Share Premium3 #rdinary Share !i)idends !ate of %ecord 1o entry !ate of !istribution Share di)idends distributable3Preference +at %ar. Share di)idends distributable3#rdinary +at %ar. Share ca%ital3%reference Share ca%ital3ordinary )( Large share di$idend !ate of !eclaration: Accumulated %rofits +at mar,et )alue. Share di)idends distributable3Preference +at %ar. Share di)idends distributable3#rdinary+at %ar. !ate of %ecord 1o entry !ate of !istribution Share di)idends distributable3Preference +at %ar. Share di)idends distributable3#rdinary +at %ar. Share ca%ital3%reference Share ca%ital3ordinary xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx

 Scri% di)idend 3 distribution of cor%orate %rofits in form of liability or %romissory note. Pro%erty !i)idend 3 distribution of cor%orate %rofits in form of non3 assets or %ro%erties. cor%oration(s in)estment +shares of stoc, . in another cor%oration

CA * !I"I!#N! Preference hare is 1#13CUMULATI8 CUMULATI8 1#13PA"TICIPATI1: PA"TICIPATI1: CA * !I"I!#N! Preference hare is 1#13CUMULATI8 ; 1#13 PA"TICIPATI1: CUMULATI8 ; 1#13 PA"TICIPATI1: 1#13 CUMULATI8 ; PA"TICIPATI1: CUMULATI8 ; PA"TICIPATI1: Preference share Current !i)idend Current !i)idend 9 Passed !i)idends Current !i)idend 9 %ro3rata share in the remainder Current !i)idend 9 Passed !i)idends 9 %ro3rata share in the remainder +rdinary share "emainder "emainder Current !i)idend 9 %ro3rata share in the remainder Current !i)idend 9 %ro3rata share in the remainder Preference share Current !i)idend Current !i)idend 9 Passed !i)idends Current !i)idend Current !i)idend 9 %ro3rata share in the remainder +rdinary share "emainder "emainder "emainder Current !i)idend 9 %ro3rata share in the remainder