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International Accounting
 

Rationale for lines of development of retained earnings accounting (uncovered loss)

Vol. 18, Iss. 2, JANUARY 2015

Available online: 20 March 2015

Subject Heading: TRANSFORMATION OF NATIONAL REPORTING

JEL Classification: 

Pages: 21-30

Sokolov A.A. Voronezh State University, Voronezh, Russian Federation
sokolov_aa@nlmk.ru

Zabrodin I.P. Voronezh State University, Voronezh, Russian Federation
zabrodin@econ.vsu.ru

Importance The crisis in the domestic economy caused the growing importance of accounting for and reporting of own and borrowed sources of funding. The essential indicator of such funding is retained earnings (uncovered loss) of an economic entity, which increase should generate increments of readily obtainable assets of a corporation.
     Objectives The objective of the study is to perform critical evaluation of the accounting treatment of retained earnings (uncovered loss) of an economic entity.
     Methods We evaluated the existing accounting treatment of retained earnings (uncovered loss) of an economic entity by using the accounting methods.
     Results We analyzed the origin of solving the issues related to accounting for retained earnings (uncovered loss) at different stages of the Russian accounting reform. The article addresses the specifics of accounting treatment of retained earnings in terms of the concept of socio-economic development of Russia until 2020 and recommendations of the Ministry of Finance of the Russian Federation on generation and disclosure of information on innovation, modernization and environmental activities in accounting records and financial statements. The study includes the investigation of problems on relationship of retained earnings and assets of an economic entity. We identified some deficiencies of the accounting treatment of retained earnings (uncovered loss), which mainly include information overloading of the Retained Earnings (Uncovered Loss) account. We also offered uniquely designed versions of detailed processes of formation and use of retained earnings on accounts and in financial statements.
     Conclusions and Relevance We conclude that in the context of the need to improve the transparency of accounting and reporting of retained earnings (uncovered loss), the proposed accounting treatment will contribute to strengthening control over actually used profit (without regard to directions of its use), and improving information and analytical capacity of financial statements of an economic entity.

Keywords: retained earnings, uncovered loss, accounting, financial statements, balance sheet, profit, use

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