Create Retained Earnings Account
Okay, we are going to create the retained earnings account now. Just now, we saw how to create the account groups to classify our G/L accounts. The next step is to create the retained earnings account, but before that, we need to do something. Do you see this, enter global parameters for the company code? Once we have created the company code just now, we have to enter some parameters. This one is global parameters because it’s globally available.
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Okay, let me go to Sun. This is the company code we have created, and since we copied this company code from company code 1000, these values have been defaulted from company code 1000. Remember we have created the chart of account just now, we have to change this value to the chart of account we have created.
Our chart of account is Sun. Press enter. Solar is our group company name which has been already assigned, and the country chart of account is default to the GKR because this is copied from the company code 1000. Just blank it off. It’s better to blank it off. You can leave it as it is also, and you can see a lot of parameters here, but I’m not going to explain each and every parameter because it’ll be very difficult for you to understand at this juncture. Let me explain some of the important parameters here. I’ve already explained about this. Credit control area is related to credit management. I’m going to explain this later. Don’t bother about this. Fiscal year variant, this is also important but I am not going to explain now. We will cover this in the additional transactions session, field status variant and posting period variant. These are the six parameters which are really important. You can ignore the rest. Ignore all this. I am going to explain about this, this and this later on when we come to the additional transactions section. We have changed this for now. We are going to change only the chart of accounts to Sun so that we can proceed to create our retained earnings account. Save it.
Before we create the retained earnings account, let me just open this up and show you how the retained earnings account will look like. You see this chart of accounts, INT, the sample chart of account, our chart of account is Sun. It is not the chart of account. This is something else. You see how they are set up, these are two retained earnings account that are set up. One is X, and the other one is Y. This is how we have to set up one for our chart of account called Sun. Let me go to Sun. Now it’s empty because we haven’t created a retained earnings account yet. We are going to create now. Let me see whether we can have a session here. Alright. You see this, before we create a retained earnings account, before we define a retained earnings account, we need to create the G/L account first for the return.
We are going to create a G/L account first. Accounting, Financial Accounting, General Ledger, Master Records, G/L Accounts, Individual Processing, Centrally. This is where we can create a retained earnings account. The retained earnings account, G/L account that we are going to create is 10000. Company Code, Sun.
Not defined. Let me just check what the error message is about.
I need to choose some other account first to clear this off. Let me just clear this off. Do you know why you are getting this error here? I know why. When you get this error here, it means that you have to set up the P&L account statement type here. See this? You just enter X here and save it, you will get this message, “Enter account.” Just enter. Changes have been made. This is blank.
This is the GL account we are going to create and then assign it here. Before that, you need to create this. That’s why you are getting the error message here. See this. Now we have created the error message. We created X, the error message has disappeared, so let us proceed. I choose account group, current liability, balance sheet account, because a retained earnings account has to be defined as a balance sheet account. Since we are using the series of four, 4000 series, it has to be defined as account group current liability. Let me just show you one thing. I will open another session here. Let me go to SAPRO.
Do you remember the account group? Come here, and here, go to Sun. Do you see this? Do you know why I’m using this? Since I’m using the four series, I have to choose this account group which is the current liability, otherwise it will throw an error message.
Let me go here, 4000 series, here, current liability, control data, this one is account currency.
Field status group. You’d enter the field status group. In the control data, the important thing you need to enter is account currency. Make sure you enter USD. You can leave the blank first. Come here, create/bank/interest tab. You have to specify this, general, G0001. I’ll explain what the field service group is later when we go to advanced transactions. For now, just bear in mind that you would enter G0001, because if I start explaining about this, then it will complicate the whole thing and you will not understand the whole process. What I’m going to show you now is a simplified process. Just save it. Oh yeah, we need to enter a description, that’s why we are getting a message here. Just enter the description here, retained earnings account. Save it. You get this message.
Yellow and green messages can be ignored, only the red colored message has to be fixed. You see this, I positioned the cursor on a yellow message, it says warning. Warning messages can be ignored. Now the data is saved. G/L account has been created. I’m going to copy this, just highlight this, copy, go to our retained earnings account, paste it there, and save it. That’s all. This is how you’re going to create a retained earnings account. Alright. I’m going to create one more retained earnings account. Let’s not complicate the whole thing. We just limit it with one retained earnings account.
So what happens is that all the P&L accounts that you’re going to create after this will be automatically assigned to this retained earnings account. In other words, it’ll be automatically linked to this single retained earnings account, so that the year end, when you calculate your profit/loss and execute a step to carry forward to the next year, the net balance of the profit and loss account, whether it’s a net profit and net loss will be written to this single retained earnings account which is here. I just closed it. Let me just open it.
It will be posted to this single account. Let me just explain this using a whiteboard here. What will happen here is that during year end, what will happen is that all the balances of the P&L accounts. You have Income account, sales account one, sales account two, sales account three. All these are income accounts, right? And then, our cost of sales account is, let me just use the abbreviation as COS. COS is cost of sales account. COS Ac 1, COS 2 Ac 2, COS Ac 3. Let’s say we have $1000 here, $2000, and let’s say we have $3000 here, the total of sales account is $6000,, and the total of cost of sales, let’s say I just put a lower amount of 500, and this is 300, let me just take out the last one. Okay, let’s say we have only two cost of sales accounts, and the total will be 800 bucks. 500 plus 300. Now, what will happen is that when I run the carry forward function at the year end, our financial year is 2009, right? At the at the end of 2009, somewhere around December 25th or 27th, during the last business day of the year, I’ll run this carry forward to next year’s function.
There’s a function. There’s a function here. Let me just show it to you so that you can understand better.
All right, financial accounting, closing is somewhere around here, just bear with me, I’m locating it. Yes, this is the one. Balance carryforward.
You need to run this function on the last business day of 2009 so that the figures can be carried forward to 2010. It’s loading. Let me go back here. What will happen here is 6,000 minus 800. Gross profit is 5,200. Do you know how I got 5,200? 6,000 minus 800.
Okay, so my gross profit is 5200. What I’m trying to say is, once you run this function, let me see whether it’s loaded. Yeah, it’s loaded now. This function here is loaded now. Once you run this function, the system will calculate this amount by deducting the cost of sales from sales accounts and write this amount to the retained earnings account we have created just now.
On 1st of January 2010, if we check the balances of this account, it will be 5200, provided you have run this, the carryforward function. All right, this is how the retained earnings account is linked to the P&L accounts. There’s one more thing. If you have more than one P&L, I would require a retained earnings account created here, Y, Z, and so forth. Many retained earnings accounts. Normally, the companies will use only one retained earnings account, but in big companies, they might want to differentiate the profit into different accounts, so they may want to open many accounts here. If they do that for all the P&L accounts, we haven’t created P&L account yet, but if we have created a P&L account, you will have a tick mark here, and then this will be either sales or cost of sales or these two.
If we have more than one retained earnings account set up here for all the P&L accounts, you will see one extra field here, something like this here for you to select which retained earnings account you want to link the P&L account to.
Since we have only one retained earnings account created here, the system will not prompt you further to define which retained earnings account the P&L account should be linked to. Automatically, if there’s only one retained earnings account, automatically, this system will link all the P&L accounts to this single retained earnings account.
What I’m trying to say here is don’t expect to see a selection here for the retained earnings account when you have created only one retained earnings account. The system will not show you a selection. The system will show you a selection for the retained earnings account only in the event you have created more than one retained earnings account.
That’s it. Make sense? That’s about it. There’s nothing to save because we have already saved this. We will go to the next topic. We have created everything. We can go to the next topic.
You may watch the full course on the following YouTube link
https://www.youtube.com/watch?v=5zrWf2ubQbo&list=PLN17Nn94liux88cwVwqbiRQQo1qK4sOdQ&index=6&pp=iAQB