What account 8710 is for
During the year an organisation earns income and incurs expenses. At year end everything is gathered in account 9910 "Final financial result" into a single figure: a profit or a loss. That result now needs a "place of residence": where does it sit while the profit has not yet been divided among the founders or set aside to a reserve? Exactly in 8710. Paragraph 364 says that this account records the retained earnings (uncovered loss) of the organisation from its activity during the reporting period.
Group 8700 has two sub-accounts (paragraph 363):
| Sub-account | What is recorded |
|---|---|
| 8710 "Retained earnings (uncovered loss) of the reporting period" | The result of the current reporting period |
| 8720 "Accumulated profit (uncovered loss)" | The balance transferred from 8710 after distribution |
A liability account: what it means
In the chart of accounts, 8700 has type "P" (liability). Under paragraph 3 of NAS No. 21, on a liability account the balance and the increase in liabilities and equity are shown on the credit side and the decrease on the debit side. Retained earnings are part of equity, therefore:
- when a profit is earned, 8710 is credited and equity grows;
- when the profit is directed to dividends, to a reserve or transferred to 8720, 8710 is debited;
- when there is a loss, 8710 is debited, that is, a debit balance means an uncovered loss.
How the entries run
Step 1: transferring the result. When the reporting year is closed, the balance of account 9910 is closed in correspondence with 8710 (paragraph 435). Under paragraph 364, net profit is taken to the credit of 8710 and a loss to the debit.
Step 2: distributing the profit. The debit of 8710 shows where the profit was directed. All rows recorded on the debit in the tables of NAS No. 21:
- directing to the payment of dividends: Cr 6610 (paragraph 365, row 2);
- accruing dividends to shareholders: Cr 6610 (paragraph 285, row 1; this row shows 8710 or 8720 as the debit);
- in the amount of dividends accrued when part of the profit is directed to increase the charter capital: Cr 6610 (paragraph 348, row 2, sub-paragraph "a");
- directing to reserve capital (fund): Cr 8520 (paragraph 365, row 3 and paragraph 358, row 6);
- net loss of the reporting year: Cr 9910 (paragraph 365, row 1; paragraph 436, row 11);
- transferring the profit balance to accumulated profit: Cr 8720 (paragraph 365, row 4).
Step 3: the balance. Under paragraph 364, the amount left after distribution is transferred from 8710 to 8720. For a loss, the table gives a reverse entry: Dr 8720 Cr 8710 (paragraph 365, row 4, "loss").
What is recorded on the credit
The credit has two rows in the tables of NAS No. 21:
| Transaction | Debit |
|---|---|
| Final financial result of the reporting period is a profit (paragraph 365, row 1; paragraph 436, row 10) | 9910 |
| In case of a loss, transfer of the loss to 8720 (paragraph 365, row 4, "loss") | 8720 |
What to watch out for
- Do not mix up the direction. Profit: Dr 9910 Cr 8710. Loss: Dr 8710 Cr 9910. Both stand side by side in paragraph 365, row 1 (practical tip).
- The reserve has a separate condition. Under paragraph 364, retained earnings may be used to form reserve capital in the manner set by legislation. How much is set aside depends not on the entry but on the constitutive documents and legislation.
- Do not forget to transfer the balance to 8720. After distribution, no unused amount of the current year should remain in 8710: under paragraph 364 it is transferred to 8720 (practical tip: check the 8710 balance after closing).
- A dividend entry is a debt entry. Dr 8710 Cr 6610 moves the dividend debt to the founders to account 6610; so prepare the document with the decision on profit distribution before the entry (practical tip).
Main journal entries 11
Debit and credit are as in the model table of Appendix 2 to NAS No. 21. The transaction text briefly restates the table row.
| Transaction | Debit | Credit | Source |
|---|---|---|---|
| The final financial result of the reporting period turned out to be a profit and was transferred to 8710 | 9910 | 8710 | NAS No. 21, para. 365, row 1 |
| The final financial result of the reporting period turned out to be a loss and was transferred to 8710 | 8710 | 9910 | NAS No. 21, para. 365, row 1 |
| Net profit of the reporting year | 9910 | 8710 | NAS No. 21, para. 436, row 10 |
| Net loss of the reporting year | 8710 | 9910 | NAS No. 21, para. 436, row 11 |
| Retained earnings of the reporting period directed to the payment of dividends | 8710 | 6610 | NAS No. 21, para. 365, row 2 |
| Dividends accrued to shareholders (8710 or 8720 on the debit) | 8710, 8720 | 6610 | NAS No. 21, para. 285, row 1 |
| Amount of dividends accrued when part of the profit is directed to increase the charter capital | 8710 | 6610 | NAS No. 21, para. 348, row 2, sub-para. "a" |
| Retained earnings directed to forming reserve capital | 8710 | 8520 | NAS No. 21, para. 365, row 3 |
| In accordance with the constitutive documents and legislation, the current year's profit directed to reserve capital (fund) | 8710 | 8520 | NAS No. 21, para. 358, row 6 |
| Balance of the retained earnings of the reporting period transferred to accumulated profit | 8710 | 8720 | NAS No. 21, para. 365, row 4, "profit" |
| Loss of the reporting period transferred to the account of accumulated profit (uncovered loss) | 8720 | 8710 | NAS No. 21, para. 365, row 4, "loss" |
Example
Sirdaryo Non LLC (a fictitious producer of bread and confectionery) closed the year with a net profit. In account 9910 the profit came to 120,000,000 soums. The founders decided to distribute the profit as follows (the amounts are taken for illustration only):
| No. | Transaction | Dr | Cr | Amount, soums |
|---|---|---|---|---|
| 1 | The result of the year, net profit, transferred to 8710 | 9910 | 8710 | 120,000,000 |
| 2 | Part of the profit directed to the payment of dividends | 8710 | 6610 | 50,000,000 |
| 3 | Part of the profit directed to reserve capital | 8710 | 8520 | 12,000,000 |
| 4 | The rest of the profit transferred to accumulated profit | 8710 | 8720 | 58,000,000 |
Source of the entries: 1 is para. 365, row 1 (para. 436, row 10); 2 is para. 365, row 2; 3 is para. 365, row 3; 4 is para. 365, row 4, "profit". The amount directed to dividends and to the reserve is set by the company's constitutive documents and legislation; the figures here are invented.
Calculation for 8710:
| Indicator | Amount, soums |
|---|---|
| Credit turnover (1) | 120,000,000 |
| Debit turnover (2, 3, 4) | 50,000,000 + 12,000,000 + 58,000,000 = 120,000,000 |
| Balance after distribution | 0 |
Check: 120,000,000 − 50,000,000 − 12,000,000 = 58,000,000 soums; this is exactly the amount transferred to 8720 by entry 4, which is why 8710 is closed.
In case of a loss. If the year is closed with a loss of 20,000,000 soums, the entry is reversed: Dr 8710 Cr 9910 for 20,000,000 soums (para. 365, row 1, "loss"; para. 436, row 11). A debit balance of 20,000,000 soums, the uncovered loss, appears in 8710 (example prepared by the author).