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Define Retained Earnings Account
Chapter 2 ■ Defining the Chart of Accounts
In accounting, a portion of the profits is held back at the end of a fiscal year as retained earnings (net profit)
after distributing dividends to the shareholders in proportion to their investment in a corporation. Normally,
the net profit or net loss figure is carried forward to retained earnings on the balance sheet. For example,
Figure 2-11 shows that the retained earnings of $300 on the income statement is carried forward to the
balance sheet.
Figure 2-11. Illustration of retained earnings on the income statement and balance sheet
The amount carried forward is either added to the shareholders’ equity, if profit is realized, or deducted
from the shareholders’ equity, if a loss is incurred. This indicates the profit position of a corporation.
When you’re customizing, retained earnings are assigned to the profit and loss (P&L) statement
account type defined in the chart of accounts area of the P&L account. At the end of the year the system
will automatically carry forward the balance of the P&L account to the retained earnings account. To define
retained earnings in SAP R/3, follow this menu path: IMG: Financial Accounting (New) ➤ General Ledger
Accounting (New) ➤ Master Data ➤ G/L Accounts ➤ Preparations ➤ Define Retained Earnings Account.
Or you can use the transaction code OB53.
The Enter Chart of Accounts dialog box pops up. Enter your chart of accounts code in the Chart of
Accounts field. Then click the Enter button to call up the Maintain FI Configuration: Automatic
Posting – Accounts screen (Figure 2-12), where you assign the account type for retained earnings to the
G/L account in your chart of accounts. This account assignment will allow the system to use the automatic
function to carry forward retained earnings to the balance sheet. A typical account type commonly used in
SAP R/3 is X. If you have more than one retained earnings to enter in the chart of accounts in the P&L
Statement fields in your chart of accounts, you can use account types Y and Z to add additional retained
earnings in your chart of accounts. This activity uses X for the P&L account type and CA90 for the chart of
accounts, since we are only looking at one retained earnings.
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