Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders’ equity on the balance sheet.
In SAP, the P & L balance is carried forward from one fiscal year to another using the standard SAP carry forward program. Once this step is defined the P&L net earnings/loss is automatically carried to the Balance Sheet.
In our example we will record ‘Retained Earnings Account’ under ‘Reserves and Surplus’ heading. Click here to know how ‘Reserves and Surplus’ heading was defined previously.
- SPRO > IMG > Financial Accounting > GL Accounting > GL accounts > Master Data > Preparations > Define Retained Earnings account : (or use TC: OB53)
- Enter chart of accounts (In our eg: FWCA)
- Under P&L statement acct type: Enter ‘x’ (not ‘*’ star).
- Under ‘Account’: If you have already created ‘Retained Earnings Account’ mention the GL account number/reference and SAVE. If you haven’t created any GL account as yet simply type your desired account number (In our eg: 120000)
- Since we haven’t created this GL account manually and assigned to the COA you will get a warning message. Ignore this warning message for now as we are going to create this general ledger account.
- After seeing the warning message hit enter-key twice and SAVE
Note:The reason for typing ‘x’ under ‘P&L statement acc type’ is to make this format standard for every year. You don’t have to repeat this configuration for each financial year.
Step2: Creating the GL account ‘Retained Earnings Account’:
- Enter ‘/nfs00’ in the command bar/prompt and hit the enter-key
- Enter GL Account: 120000; Enter company code and click on the small ‘CREATE’ icon.
- You will notice few tabs here: Type/description | Control data | Create bank interest and so on…
- Under ‘Type/Description’: for ‘Account group’ select ‘Reserves and Surplus’, Tick on ‘Balance Sheet’ and Enter the Long/Short Texts “Retained Earnings Account”
- Under ‘Control data’: Account currency (in our case) is USD, Tick on ‘Only balance in local currency’, for ‘Sort Key’ type ‘001’ and tick on ‘Line item display’
- Under ‘Create bank interest’: For ‘Field status group’ type ‘G001’
- Like so, you have created a GL account ‘Retained Earnings Account: 120000’ and assigned this account to the standard SAP carry forward program!
- In the above example ‘Type/description > Account group > Reserves and surplus’; Here, ‘Reserves and surplus’ heading is not a default option. We had defined it previously while doing the Account Group configuration. Click here to see where this option is defined
- Retained earnings account number’120000’ is not any random number. We had already defined this under a number range for ‘Reserves and Surplus’ heading. Click here to know how we picked that particular number.
- In the above example, although there are many other options/selections while creating ‘Retained Earnings Account’ GL account I have chosen only the necessary options for creating a GL account. All other options that are not mentioned above can be ignored.