The document discusses the concept of retained earnings in accounting and how it is handled in Oracle applications. Retained earnings represents a company's accumulated profits or losses after distributing dividends. In Oracle, the retained earnings account is used to transfer net profit or loss at the end of each period. It is a required account in the general ledger but not used in subledgers. The document provides guidance on changing the retained earnings account and tracking retained earnings for different balancing segments in Oracle.

1. While creating SOB, retained earnings account is mandatory, but we are not using it anywhere in any module.Pls
help me to understand the concept of Retained Earnings.
Here is the explanation for the Retained Earnings. As per the International Accounting Standards (Reference Wiley IAS 2002: Interpretation and
Application of International Accounting Standards -Chapter 17 - Stockholders’ Equity)
Retained earnings. By definition, retained earnings represents a corpora- tion’s accumulated profits (losses) less any distributions that have been
made therefrom. However, based on provisions contained in the international accounting standards, other adjustments are also made to the
amount of retained earnings. IAS 8 (revised 1993), Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies,
requires the following to be shown as adjustments to retained earnings "
In Oracle applications , the Retained account is used to transfer the Net profit or loss . When you open the first month in the new calendar year
,Oracle application zero out your expenses and revenue account and transfer your Profit or loss in the retained earnings account. This is a credit
Balance account When there is a profit , this account will be credited and when there is loss , this account will be debited .
Here is an explanation about the Oracle General Ledger
Reference from "Oracle E-Business Suite 11i: Implementing Core Financial Applications " Book written by by Susan Foster - Chapter 5 -
General Ledger.
“This chapter describes using Oracle General Ledger to enter and post journal transactions, generate recurring journals and allocations, enter
budgets, and produce financial statements and standard General Ledger reports. Oracle General Ledger is the system of record for all Oracle
applications that produces financial transactions including Oracle Payables and Oracle Receivables.
To fully comprehend Oracle General Ledger capabilities, the fundamental concepts of accounting must be understood. These concepts include the
accounting equation and the transaction principle.
The first concept is the accounting equation. The accounting equation states that total assets must equal total liabilities plus owner's equity. An
increase in assets must reflect a corresponding increase in liabilities or owner's equity. In other words, the balance sheet accounts must balance.
An increase in expenses may also reflect a corresponding increase in liabilities. At year-end, the income and expense accounts are closed to the
retained earnings account in the owner's equity section of the balance sheet. In other words, at year-end, the balance sheet still balances.
The second concept is the transaction principle. The transaction principle states that all financial transactions must be recorded and balance. In
other words, total debits for the financial transaction must equal total credits for the financial transaction. Therefore, all financial journals in
Oracle General Ledger must balance. If not, either the difference will be posted to the suspense account or the journal must be corrected.
Both these accounting concepts apply in Oracle General Ledger and all Oracle application subsystems, which create the financial transactions that
ultimately create journal entries. A full audit trail from Oracle General Ledger is available."
Even though Oracle application is computerized accounting system , it follows the Global General Ledger concept like maintain your sub ledgers
and Transfer to your General ledger through Journal entries .
Sub ledgers are maintained to control your payables, receivables, purchasing, Inventory . These Sub ledgers are used for eg . Oracle Payables is
used for the control of payments to vendors for goods including capitalized items and services , expense to employees. and used to control your
payables ( how much you owe) . Payable sub ledger is not calculating the profit /loss for each transactions . Accounting set -up in the payables
are for the Liability account and interest invoices and you enter the expenses/ assets account for invoices and other sub ledger’s concept is also
same in nature like payables .
when you transfer from payables and receivables , purchasing , Inventory sub ledgers in Oracle general ledger , you will be able to know how
much profit /Loss you made . The General ledger needs an account to transfer the difference between your expenses and income accounts. This is
the reason you need an “Retained Earning’ account in General Ledger . This is a required setup in General ledger and also you enter the retained
earning account only in General ledger and not in any sub ledgers,
You enter the retained earning SGL account and the rest of the segments will be entered as default value ,
Eg, my third segment is the SGL account in my ACS ( Account Code Structure ) and I entered my retained earning SGL account ( dummy value
for the example ) and entered ‘zeros’ for other segments.
000000000..0000.123456.00000000.000.00000.0.000.000.

2. How to change the retained earnings account in General Ledger
Changing the retained earnings account in General Ledger is pretty easy. Just go to the define Set of Books form and change the retained earnings
account. But is this a proper method?
No it isn’t. If you change the retained earnings since 11i there will be a warning displayed. In this warning also the steps that you have to perform
are displayed.
This warning appears if you change the retained earnings account from one account into another account. Off course this new account must exist
in your SOB.
The most easy way of changing this account is during year-end proces. So book all the journals you need on the last day of the calendar you use.
First you have to make the amounts booked on the accounts with account type Expense or Revenue 0 (zero). So you must make clear which
accounts have the type Expense or Revenue. When this is clear, run the trial balance – detail report, with YTD (year-to-date) option.
On this report you can see the value that’s booked on your accounts. Save this report as a .txt file. Open the .txt file in Excel and choose your
columns in a sensible way.
Now open ADI and choose for the create journals sheet. Unprotect the sheet and add as many rows as are necessary. Copy each segment of the
account in the right columns. Create a formula which places the amount in the right column, debit or credit.
If the amount on the account is negative book the same amount now on the debit site, and multiply the amount with -1. The amount should be
positive in ADI now. The possitive amounts must be placed on the credit site (do not mulitply this with -1).
Add one more row and balance this journal. To balance the journal use a account that has another account type then Expense or Revenue.
Upload the journal.
Go back to Oracle EBS and post the journal in GL. Now rerun the trial balance – detail report. If all went right now all your accounts with
account type Expense or Revenue must be 0. If an account is zero it won’t be displayed in this report.
Inquire your currenct retained earnings account to make sure that your period end balance is 0.
Now change the retained earnings account in your SOB.
Now you have to reverse the journal you imported via ADI. So reverse the journal and post is. Close the period (and also the year) and open the
next period (and year). Now the retained earnings will be displayed on the new retained earnings account. The old retained earnings account will
have a value of 0.
In the last period of the year, the old retained earnings account has for period ending a value of zero, while period start has any value other 0
(unless you have no retained earnings at all, which I don’t hope for you). For this period make a manually transaction from the new retained
earnings account, to the old retained earnings account. Now the trial balance makes much more sense.
At Ledger level we can assign one balancing segment value for Retained earnings account , where as if we have multiple balancing segment
values in same BG LE and OU so how we can differentiate the retained earning account balances for different balancing segment values.
At the Yr end close, the retained earnings (Revenue minus Expenses) would be calculated against the respective Balancing segments.
Hence if you run the GL Close Process during year end and then run the Trial Balances for the respective Balancing Segments , you can track the
Retained Earnings of those Balancing Segment.
Please note that running the GL Close process and creating entries for close is not mandatory, it depends on the accounting requirements. Even
though the Retained Earnings get calculated. You may see it in Trial Balances /FSGs/GL Balances table.
We have single ledger with multiple balancing segements , we will enter multiple transactions for each balancing segment values. but we can
assign only one balancing segment at ledger level how system will create other balancing segment retained earnings account , and how it will get
effect.
Ex:- Balancing segments (1, 2, 3, 4, 5) we will assign only "1" at ledger level. later we entered transanctions for "2" , "3" vis versa, how system
will generate retaned earnings account combination for "2" , "3" . based on what functionality it is working .
 Go through this document in Metalink which talks about Retained Earnings - FAQ [ID 136510.1]