Profit distribution
When you set up profit distribution records in General Ledger, you specify profit distribution accounts SA Administrator Options-Financials-Profit Distribution. Then you can use GL Administrator Distribute Profit Report to distribute profit on a period, quarterly, or annual basis. GL Administrator Distribute Profit Report reviews your General Ledger accounts and calculates the difference between the income and expense accounts. If the net income is positive, the clearing account you specify in SA Administrator Options-Financials-Profit Distribution is debited and each of the profit accounts are credited for the portion (net income times percent of profit) specified for each account. If the net income is negative, opposite entries are made to the clearing and profit accounts.
You must enter all adjusting entries before you post profit, and you can perform profit distribution for only one period at a time. The distributed amounts are stored on a monthly basis, however, you can report financial statements on a quarterly basis or in any other time frame.
If you must make unexpected adjustments after you generate GL Administrator Distribute Profit Report, run the report again after you post the adjustments. You can adjust and close out a period multiple times since the period amounts in GL Account Setup do not accumulate entries. GL Administrator Distribute Profit Report replaces the previous amount posted into these accounts and recalculates the period-to-date profits each time it is run. Therefore, once you set up your accounts in SA Administrator Options-Financials-Profit Distribution during your implementation period, you should not change the profit or clearing accounts midway through the year. If you change the accounts and distribute profit to a period that has already had profit distributed, a reversing entry is not created for the old account, and the balance sheet will overstate the retained earnings by the amount that is not reversed.
If you produce financial statements on a monthly basis, you should distribute profit before you print the reports.
Manual versus automatic profit distribution
You can post profit manually or by running GL Administrator Distribute Profit Report. You must consider some issues before you decide which method to use.
First, you might have more than four accounts to which you need to distribute profit. The SA Administrator Options-Financials-Profit Distribution window only allows for four accounts. If more exist, you must make a manual entry.
Some companies post profit at the end of the year instead of monthly, which causes the balance sheet to appear out of balance by the amount listed on the income statement during the year. Since the GL Administrator Distribute Profit Report requires one month’s entry at a time, you would have to perform this function 12 times in a row to actually post the profit. This is normally handled by making a manual entry in GL Transaction Entry to post the profit for the entire year.
If the profit for the month has been posted either manually or automatically, and you make an adjustment to the income statement, you must recalculate the profit. Use GL Administrator Distribute Profit Report to back out the previous entry and then repost the correct entry. This happens if you run GL Administrator Distribute Profit Report for the same month more than once. Be aware that if you make a manual entry, GL Administrator Distribute Profit Report can reverse it, but only updates the four accounts specified in SA Administrator Options-Financials-Profit Distribution.