(116)-PROFIT AND LOSS RESERVES

Profit and Loss Reserves

The most significant non-statutory reserve is variously described as:

• Revenue reserve
• Retained profits
• Retained earnings
• Undistributed profits
• Profit and loss account
• Un-appropriated profits

These are profits earned by the company and not appropriated by dividends, taxation or other transfer to another reserves account.

Provided that a company is earning profits, this reserve generally increases from year to year, as most companies do not distribute all their profits as dividends. Dividends can be paid from it: even if a loss is made in one particular year, a dividend can be paid from previous years’ retained profits.

Very occasionally, you might come across a debt balance on the profit and loss account. This would indicate that the company has a accumulated losses.