Why should capital reserves be converted into retained earnings?

First of all, a business combination under the same control is recorded as a share of the book value of the owner's equity of the merged party acquired on the date of the merger, and the difference between the initial investment cost and the cash paid, the non-cash assets transferred and the book value of the debts assumed is recorded in the "capital reserve".

If the capital reserve is written off, when the capital reserve is insufficient to write off, the "surplus reserve" and "undistributed profits" will be written off respectively.

Second, when consolidating the balance sheet, the offsetting entries have been fully offset against the owner's equity of the merging party (including the surplus reserve and undistributed profits of the merged party, i.e., all retained earnings as of the date of consolidation).

Third, the retained earnings realized before the merger of the merged party should be attributed to the merging party and should be reflected as the retained earnings of the group as a whole on the consolidated balance sheet. It is necessary to increase the "surplus reserve" and "undistributed profits".

From the entries at the time of consolidation:

Borrow: Long-term equity investment.

Borrow: Capital Reserve - Equity Premium.

Credit: bank deposits, etc.

To consider, the equivalent entry at this time is:

Borrow: Long-term equity investment.

Borrow: Capital Reserve - Equity Premium.

Credit: bank deposits, etc.

Credit: Surplus Reserve.

Credit: Undistributed profits.

That is, the carrying amount of the consideration at the time of the merger is exchanged for a long-term equity investment, and there is also a part of the profit or loss realized by the merged party before the merger.

As can be seen from the above entries, it should be transferred from "capital reserve" to "surplus reserve" and "undistributed profits".

If the credit balance of capital reserve - equity premium is less than the portion of the retained earnings realized by the merged party before the merger attributable to the merging party, the entry will become (difference at the time of initial investment = initial investment cost - cash paid, non-cash assets transferred and book value of liabilities assumed - > capital reserve; If the capital reserve is insufficient to offset the offset, the retained earnings shall be adjusted).

Borrow: Long-term equity investment.

Borrow: surplus reserve.

Debit: Undistributed profits.

Credit: bank deposits, etc.

Credit: Surplus Reserve.

Credit: Undistributed profits.

The borrowers of the above entries are all surplus reserves and undistributed profits, so there is no need to adjust the part that exceeds the capital reserve - equity premium.

In summary, in the case of a business combination under the same control, the part of the retained earnings realized by the merged party before the merger attributable to the merging party is limited to the book capital reserve (capital premium) of the merging party, and is transferred from "capital reserve" to "surplus reserve" and "undistributed profits" in the consolidated balance sheet.

It doesn't belong. Capital reserve: It is the capital or assets invested by investors or others in the enterprise, the ownership is vested in the investor, and the amount exceeds the registered capital.

From the perspective of formation, capital reserve is not converted from the profits realized by the enterprise, and should essentially belong to the category of input capital, so it is fundamentally different from retained earnings, because the latter is converted from the profits realized by the enterprise. Retained earnings: Profits created by the company in the course of operation, but not distributed to the owner and retained in the company due to the needs of the company's operation and development or due to statutory reasons.

Retained earnings refer to the net profit realized by the enterprise from the profits realized over the years or retained in the internal accumulation of the enterprise, which is the net profit realized by the production and operation activities of the enterprise, including the surplus reserve and undistributed profits of the enterprise.

Retained earnings include surplus reserves and undistributed profits. When surplus reserve is used to increase capital, the surplus reserve decreases, the share capital (or paid-in capital) increases, and the total retained earnings decrease.

2. How to withdraw the statutory surplus reserve.

The statutory surplus reserve fund is a provident fund that must be withdrawn according to the unified provisions of the state, and its withdrawal order is withdrawn according to 10% of the after-tax profit of the current year after making up for the loss. When the surplus reserve fund has reached 50 of the registered capital, it will not be withdrawn. The withdrawal ratio of the statutory surplus reserve fund of an unincorporated enterprise can exceed 10% of the net profit.

Legal provisions: Article 166 of the Company Law of the People's Republic of China.

When the company distributes the after-tax profits of the current year, it shall withdraw 10% of the profits and include them in the company's statutory reserve fund. If the cumulative amount of the company's statutory reserve fund is more than 50% of the company's registered capital, it can no longer be withdrawn. If the company's statutory reserve fund is insufficient to make up for the losses of previous years, it shall first use the profits of the current year to make up for the losses before withdrawing the statutory reserve funds in accordance with the provisions of the preceding paragraph.

After the company withdraws the statutory reserve fund from the after-tax profits, it can also withdraw any reserve fund from the after-tax profits by resolution of the shareholders' meeting or the general meeting of shareholders. The after-tax profits remaining after the company makes up for the losses and withdraws the provident fund shall be distributed by the limited liability company in accordance with the provisions of Article 34 of this Law; Shares are distributed in proportion to the shares held by shareholders, except for those that are not distributed in proportion to the shares held by the articles of association. If the shareholders' meeting, the general meeting of shareholders or the board of directors violates the provisions of the preceding paragraph by distributing profits to shareholders before the company makes up for its losses and withdraws its statutory reserve fund, the shareholders must return the profits distributed in violation of the provisions to the company.

Shares of the Company held by the Company shall not be subject to distribution of profits. To sum up, the conversion of surplus reserve into capital will definitely affect retained earnings, because the retained reserve includes surplus reserve before broadening, and if the surplus reserve is converted into capital, the surplus reserve will decrease, which means that the retained earnings will also decrease.

Capital reserve and retained earnings are two different financial concepts, and they have different roles and meanings in accounting and financial management. Here is a detailed explanation of the difference between capital reserve and retained earnings:

1.The definition and nature are different: capital reserve refers to the excess capital formed by hail enterprises from the first issuance, new share issuance, asset restructuring and other activities, which is an important part of the capital structure of the enterprise.

Retained earnings, on the other hand, refer to the net profit obtained by an enterprise from business operations, which has not been distributed or converted into other forms of capital. The nature of the two is different, capital reserve is a capital in the nature of equity, while retained earnings are in the nature of business funds.

2.Different uses and functions: the main purpose of capital reserve is to be used for capital expansion, repurchase, allotment and other activities of the enterprise, so as to maintain the stability of the company's share capital and enhance the capital strength of the enterprise.

The main purpose of retained earnings is to reinvest, borrow, distribute dividends, etc., to maintain the vitality of the enterprise and improve the income of shareholders.

3.Different accounting treatments: Capital reserves and retained earnings are also accounted for differently.

Capital reserve is a capital fund in the nature of share capital, which needs to be listed separately in shareholders' equity, and cannot be used to distribute dividends or be converted into other forms of funds. Retained earnings are funds of an operating nature, which need to be accounted for in profit distribution, and can be used to distribute dividends, retain them as self-retained earnings, increase capital, etc.

4.Different laws and regulations: The laws and regulations on capital reserve and retained earnings are also different.

In both the Company Law and the ** Law, there are provisions on capital reserve, while the provisions on retained earnings mainly involve issues such as profit distribution and shareholders' equity.

In short, capital reserve and retained earnings are two important concepts in the financial management of enterprises. They are different in terms of definition, use, accounting treatment, laws and regulations, etc., and need to be reasonably allocated and managed according to the specific situation in practical application, so as to achieve the steady development of enterprises and the maximization of shareholders' returns.

1. Differences in meaning.

Capital reserve refers to the provident fund formed by an enterprise in the course of operation due to the acceptance of donations, equity premiums, and the revaluation and appreciation of statutory property. Capital reserve is a credit that is not related to the earnings of a business but is related to capital. Capital reserve refers to the capital invested by investors or others in the enterprise, the ownership of which belongs to the investor, and the amount invested exceeds the authorized capital.

Retained earnings refer to the internal accumulation of enterprises that are extracted or formed from the profits realized over the years and retained in the enterprise.

2. Differences in content.

Capital reserve includes capital (equity) premium, other capital reserve, asset appraisal appreciation, and capital conversion difference. The capital premium is the part of the company's equity bonds issued in excess of the owner's equity, and other capital reserves include changes in the fair value of financial assets available for ** and changes in the net profit of the investee under the equity method of long-term equity investment.

Retained earnings include the company's surplus, provident fund, and undistributed profits. Surplus reserve is the accumulated surplus for a specific purpose, including statutory surplus reserve and discretionary surplus reserve. The statutory surplus reserve is the surplus reserve withdrawn from the net profit by the enterprise in accordance with the prescribed proportion, and the arbitrary surplus reserve is the surplus reserve withdrawn by the enterprise in accordance with the resolution of the shareholders' meeting or the general meeting of shareholders; Undistributed profit is an accumulated surplus that is not earmarked.

3. Set the difference in accounting accounts.

The capital reserve shall be set up with a "capital reserve" account to account for the increase or decrease of the capital reserve. In order to reflect the increase or decrease of various types of capital reserves, detailed accounts such as "capital (or equity) premium", "provision for non-cash assets for accepting donations", "provision for equity investment", "transfer in appropriation", "difference in price of related party transactions" and "other capital reserve" are set up according to the category of capital reserve.

The "Surplus Reserve" account is set up for retained earnings to account for the increase or decrease of the withdrawal and use of surplus reserve. Under the "Surplus Reserve" account, three detailed accounts of "Statutory Surplus Reserve", "Arbitrary Surplus Reserve" and "Statutory Community Chest" are set up to account for the surplus reserves and their use of the enterprises extracted from net profits.

The difference between the paid-in capital reserve and the positive income of the retained capital.

1. The difference between capital reserve and paid-in capital (or share capital).

Paid-in capital (or share capital): refers to the capital actually invested by the investor in the enterprise and registered in accordance with the law in accordance with the articles of association or contracts and agreements, which reflects the basic property rights relationship between the owner of the enterprise and the enterprise.

Capital reserve: It is the part of the investor's capital contribution that exceeds its share in the registered capital, as well as the gains and losses directly included in the owner's equity, and it does not directly indicate the owner's basic property rights relationship to the enterprise.

2) From the point of view of use:

Paid-in capital (or share capital): The composition ratio of paid-in capital is the basis for the owners to participate in the financial operation decisions of the enterprise, and it is also the basis for the enterprise to distribute profits or dividends, and it is also the basis for determining the owner's claim to net assets when the enterprise is liquidated.

Capital reserve: The purpose of capital reserve is mainly to increase capital (or share capital).Capital reserve does not reflect the proportion of ownership by each owner, nor can it be used as the basis for the owner to participate in the financial operation decision-making of the enterprise or to distribute profits (or dividends).

2. The difference between capital reserve and retained earnings.

What is the difference between capital reserve and retained earnings?

2. Different uses: capital reserve is mainly used to increase capital; Retained earnings are mainly used to distribute profits, cover losses, and increase capital.

3. Including different contents:

Capital reserve includes capital (equity) premium, other capital reserve, asset appraisal appreciation and capital conversion difference. The capital premium is the excess of the equity bonds** issued by the company over the owner's equity. Other capital reserves include changes in the fair value of available** financial assets and changes in the net profit of the investee under the equity method of long-term equity investment.

Retained earnings include surplus provident fund and undistributed profits. Surplus reserve refers to the accumulated surplus reserve for specific purposes, including statutory surplus reserve and arbitrary surplus reserve. Statutory surplus reserve refers to the surplus reserve withdrawn from the net profit of the enterprise in accordance with the prescribed proportion; Discretionary surplus reserve refers to the surplus reserve withdrawn by the enterprise in accordance with the general meeting of shareholders or the resolution of the general meeting of shareholders; Undistributed profit refers to the accumulated surplus that is not specified.

What are the differences between retained earnings on paid-up capital from capital reserves? In fact, we all know that after following the relevant introduction materials explained by the teacher, everyone should have some knowledge of capital reserve, paid-in capital and retained interests. In fact, these three are different in **, nature and use, if you want to learn other accounting knowledge, then the teacher suggests that you can come here to try.