While creating the expense accounts and income accounts we have to specify the profit and loss accounts accounts type.For which it is compulsory to create one retained earning accounts .We can create any number of profit and loss accounts types for example operating profit and loss accounts to know the operating profit similarly we can create non-operating profit and loss accounts.At the end of financial year these profit and loss accounts are taken to the balance sheets.
Retained earning accounts use to carry forward the balance from one Fiscal Year to next fiscal year .You can a Retained earning accounts to each profit and loss accounts in charts of accounts.With the balance carry forward the proftit and loss accounts are carry forward to to retain earning accounts in the balance sheet.
Retained earning accounts is part of Profit and loss accounts when company earned some profit they carry some part of profit to retained earning account so that can be use according to organisation need.
Retained earning = Net income – dividend (dividend distributed to shareholders)
Net Income = total revenue – total income
Path for RETAINED Earning in SAP FI
There are two ways to define a Retained Earnings Account. You can either use the T-code OB53 or by T-code SPRO. Go to SAP Reference IMG → Financial Accounting → General Ledger Accounting → G/L Accounts → Preparations → Define Retained Earnings Account → Execute.
Enter the Chart of Accounts to define the Retained Earning Account for COA and press Enter.
Now create retained earning accounts
Click on Save button before further proceeding
Assign company code to Retain earning Accounts
There are two ways to define a Retained Earnings Account. You can either use the T-code OB53 or by T-code SPRO. Go to SAP Reference IMG → Financial Accounting → General Ledger Accounting → G/L Accounts → Preparations → Assign Company code to chart of accounts
Search for chart of accounts for which retained earning accounts to be maintain
assign chart of accounts to company code
save the process request will be generated