How to write the accounting entries for enterprises to make up for the losses in previous years?

To make up for the loss of previous years means that in accounting treatment, if the net profit of the previous year is negative or the sum of the net profits of the previous year is negative, then the enterprise should first make up for this part of the loss with the pre-tax profit of this year. How to make relevant accounting entries?

Accounting entries for enterprises to make up for losses in previous years

1. Make up the loss with pre-tax profit.

The tax law stipulates that when an enterprise suffers annual losses, it can use the income of the following year to pay taxes. If the income of the following year is not enough to make up for the loss, it can continue to make up for it year by year, but the longest period of making up for it shall not exceed 5 years.

At the same time, the tax law stipulates that pre-tax profits can be used to make up for the losses of previous years, and accounting entries can be omitted.

2. Make up the loss with after-tax profit.

After-tax profits automatically make up for the losses of previous years, without additional entries, as long as the profits of this year are transferred to undistributed profits.

Debit: this year's profit

Loan: Profit Distribution-Undistributed Profit

3. Use surplus reserves to make up for losses.

When an enterprise uses surplus reserves to make up losses, it shall be proposed by the board of directors of the company and approved by the shareholders' meeting.

When an enterprise uses surplus reserves to cover losses:

Borrow: surplus reserve

Loan: profit distribution-surplus reserve to cover losses

When carrying forward surplus reserve to cover year-end losses:

Borrow: profit distribution-surplus reserve to make up for losses

Loan: Profit Distribution-Undistributed Profit

What is surplus reserve?

Surplus reserve refers to the accumulation of income extracted from after-tax profits and left in the enterprise with specific purposes. Surplus reserve includes statutory surplus reserve, arbitrary surplus reserve and statutory public welfare fund. According to its different uses, it can be divided into two categories: public welfare fund and general surplus reserve. The public welfare fund is specially used for the expenditure of welfare facilities for enterprise employees. There are two kinds of general surplus reserves: one is statutory surplus reserve; The other is arbitrary surplus reserve.