If you’re new to accounting, you should read our article about Financial Reports (Balance sheet and Profit & Loss Statement).
In the closing procedure of financial report (e.g. annually), the balance of Profit & Loss (P&L;) Statement accounts are carried forward to a retained earnings account, and the Profit/Loss statement accounts is set to zero.
Retained Earning = Retained Earning from previous period + Net Income – Dividends.
In the creation of a P&L; account (“FS00” T-code), we must assign a retained earning to it by specifying P&L; statement account type in the chart of Accounts (COA). If there is only one retained earnings account, SAP will automatically uses the one defined in customizing. If there are more than one retained earnings account, during P&L; account creation, we must choose the retained earnings account per P&L; account like this:
We can define Retained Earnings Account with “OB53” T-code or through “SPRO” T-code menu: Financial Accounting – General Ledger Accounting – G/L Accounts – Master Records – Preparations – Define Retained Earnings Account.