Preface – This post is part of the SAP FI series.

What is a Retained Earnings Account?

The retained earnings account is used to post the income and expenditure for the year. It holds the balance of the previous fiscal year over into the next fiscal year. In the year’s balance sheet, retained earnings are reflected as reserves and surplus. In the chart of accounts (COA), each P&L account can be assigned a Retained Earning Account. You can define P&L statements as per COA and assign them to retained earning accounts in order to carry the balance forward to the next fiscal year.

How to define a Retained Earnings Account?

First Approach: T-code: OB53

Second Approach: T-code: SPRO

Path: SPRO → SAP Reference IMG → Financial Accounting → General Ledger Accounting → G/L Accounts → Preparations → Define Retained Earnings Account → Execute.

1. Go to Define Retained Earnings Account

2. Enter Chart of Accounts to maintain retained earnings account.

3. In the next screen, select New Entries

4. Provide the following details:

Important Note:  If you create a P&L account, you must enter the account type for the retained earnings account for each P&L account.

5. Enter the G/L account that is being used for Retained Earnings

6. Provide posting key by selecting Posting key in Application menu

7. Click on Save.