How to distribute profits

The profit of the enterprise is the goal of its work, the end result of activity. The distribution of profits for the year occurs at the enterprise at its discretion. The goals for which the net profit is left, remaining at the disposal of the business entity as a result of its activities, may be determined by the charter.

Instruction manual

1

Any enterprise directs its profits primarily to payments to the budget and extra-budgetary funds, and then to the creation of a consumption fund and an accumulation fund, charity and other purposes.

2

After payment of all mandatory payments (taxes and fees), the profit of the business entity goes to the formation of an accumulation fund. Its creation, as well as the creation of a consumption fund, is provided for by constituent documents. The accumulation fund is necessary for the development of the material and technical base of the enterprise.

3

Its funds are spent on the reconstruction of existing equipment, the acquisition of new, repayment of investment loans, the maintenance of socio-cultural facilities, etc. The accumulation fund indicates the existing capabilities of the enterprise to further increase the material base.

4

A consumption fund is a means that an economic entity directs to financial incentives for employees. It is spent on annual bonuses and surcharges, on employee incentives, to pay for travel, meals, benefits, pensioners, interest on shares (dividends).

5

In addition, the net profit of the enterprise goes to the reserve fund. This is a fund designed to pay income on preferred shares and bonds in case the business entity does not have enough funds. In addition, the company will pay accounts payable from the reserve fund if it goes bankrupt.

6

Each company plans profit distribution annually. For this, data on the actual use of the funds, as well as balances at the beginning of the period, are analyzed. Most commercial firms spend profits on the formation of an accumulation fund and a consumption fund, about 30 and 40 percent of profit, respectively.