Settling the financial result (rozliczenie wyniku finansowego) is a key element of the accounting process that follows the approval of the financial statements by the relevant body. The procedure covers both situations where the entity has earned a net profit and cases where it has incurred a loss. Settling the financial result correctly requires knowledge of the Accounting Act and the ability to apply the right accounting entries in practice.
An entity's net financial result consists of several important components that together determine the final outcome of its activity. Its settlement must take into account specific booking rules and legal requirements regarding deadlines and approval procedures. In addition, the way the financial result is presented in the profit and loss account depends on the variant adopted – comparative or by function (calculation). One-off events also affect the result, such as the gain or loss on the sale of a fixed asset.
Components of the financial result under the Accounting Act
Under the Accounting Act, the net financial result of entities other than banks, insurance companies and reinsurance companies consists of three basic elements. The first is the operating result, which also includes the result on other operating income and expenses. The second component is the result on financial operations, and the third is the mandatory charges on the financial result for income tax and equivalent payments.
The operating result is the difference between net revenue from the sale of products and goods plus other operating income, and the value of products and goods sold measured at production cost or purchase price or acquisition price (Article 42 section 2 of the Accounting Act). This value is increased by all general administrative expenses, costs of selling products and goods, and other operating expenses incurred since the beginning of the financial year
The result on financial operations is calculated as the difference between financial income and financial expenses. Financial income includes in particular dividends, shares in profits, interest, gains on disposal and revaluation of investments other than those referred to in Article 28 section 1 point 1a of the Accounting Act. The excess of positive over negative exchange differences is also included. Financial expenses, in turn, include interest, losses on disposal and revaluation of investments, as well as the excess of negative over positive exchange differences, except for interest, fees and exchange differences referred to in Article 28 section 4 and section 8 point 2 (Article 42 section 3).
Entities required to have their annual financial statements audited may distribute or cover the net financial result only after the financial statements have been approved by the approving body. In addition, the statutory auditor (biegły rewident) must have issued an unqualified or qualified opinion on the financial statements
The third component of the net financial result is the mandatory charges for income tax for which the entity is the taxpayer, and equivalent payments under separate provisions. These charges directly affect the final amount of the net financial result, which is then settled in line with the decisions of the entity's bodies.
Legal conditions for settling the financial result
The Accounting Act sets out precisely the conditions that must be met before the financial result can be settled. For entities whose annual financial statements are subject to audit, the net financial result may be distributed or covered only after the financial statements have been approved by the approving body. This must be preceded by the statutory auditor issuing an unqualified or qualified opinion on the financial statements.
Entities not required to have their annual financial statements audited have a somewhat simpler procedure. For them, the net financial result may be distributed or covered after the financial statements have been approved by the approving body, without the need for an auditor's opinion.
In entities subject to audit, a distribution or coverage of the net financial result made without meeting this condition (approval of the financial statements preceded by the auditor's opinion) is null and void by operation of law (Article 53 section 3 of the Accounting Act). This means that actions taken prematurely have no legal effect
The basic bookings for settling the financial result differ depending on whether the entity has earned a profit or incurred a loss. Where a net profit has been earned, the booking is: debit (Wn) account 86 "Financial result", credit (Ma) account 82 "Settlement of the financial result". Settling a loss requires the reverse booking: debit account 82 "Settlement of the financial result", credit account 86 "Financial result".
Account 86 "Financial result" plays a key role in settling the financial result. A credit balance on this account means that the entity has earned a profit, while a debit balance indicates a loss. If the profit for a given financial year remains undistributed or the loss for that year remains to be covered in subsequent years, the unsettled financial result remains on account 82 "Settlement of the financial result".
Ways of settling the profit earned
The net profit earned may be allocated to various purposes set out in the articles of association or statutes of the entity. One of the most common ways of using profit is paying a dividend to the owners or shareholders. Booking a dividend payment involves several stages, which must be properly documented in the accounting books.
The first stage is booking the dividend amount, as follows: debit account 82 "Settlement of the financial result", credit account 24 "Other settlements". Next, the deduction of the flat-rate income tax, as a rule 19 percent of the dividend paid, must be recorded (Article 30a section 1 point 4 of the PIT Act – a shareholder who is an individual; Article 22 section 1 of the CIT Act – a shareholder that is a legal person, unless the exemption under Article 22 section 4 applies): debit account 24 "Other settlements", credit account 22 "Public law settlements". The final stage is booking the payment of the dividend net of the tax withheld: debit account 24 "Other settlements", credit account 13-0 "Current account". We post entries for profit distribution and dividend payments as part of our accounting services.
An alternative way of using profit is to transfer it to the entity's supplementary capital (kapitał zapasowy) or reserve capital (kapitał rezerwowy). This strengthens the entity's financial position and may be particularly beneficial when planning future investments or creating reserves for unforeseen expenses
Booking the transfer of profit to supplementary or reserve capital is relatively simple: debit account 82 "Settlement of the financial result", credit account 81-1 "Supplementary capital" or 81-2 "Reserve capital". The choice between supplementary and reserve capital depends on the entity's policy and the planned use of the funds. In a joint-stock company (spółka akcyjna), at least 8% of the profit for a given year must be transferred to supplementary capital until it reaches one third of the share capital (Article 396 § 1 of the Commercial Companies Code); a sp. z o.o. (limited liability company) has no such obligation.
The decision on how to settle the profit should take into account the entity's development strategy, its financial needs and the owners' expectations. Some entities choose to split the profit between different purposes, allocating part to dividends and part to strengthening equity.
Procedures for covering a loss
When the financial result shows a loss, the entity must decide how to cover it. There are several options for covering a loss, and each requires proper documentation in the accounting books and formal resolutions of the entity's relevant bodies.
One way of covering a loss is to use undistributed profit from previous years, if the entity has such funds. The booking is: debit account 82 "Settlement of the financial result" in the sub-account for net profit for the previous year, credit account 82 "Settlement of the financial result" in the sub-account for net loss for the current year.
A loss may also be covered from the entity's supplementary or reserve capital. In that case, the booking is: debit account 81-1 "Supplementary capital" or account 81-2 "Reserve capital", credit account 82 "Settlement of the financial result"
The third option is to leave the loss to be covered from profits of subsequent years. In that case, the amount of the loss carried forward remains on account 82 "Settlement of the financial result". This solution may be used when the entity does not have sufficient funds to cover the loss but has reasonable expectations of earning a profit in the future.
The typical ways of covering a loss and their characteristics are listed below:
- Coverage from undistributed profit from previous years - often the simplest solution, if the entity has such profit
- Coverage from supplementary capital - does not change total equity (it is a transfer within equity), but removes the loss from the balance sheet
- Coverage from reserve capital - like supplementary capital, does not change total equity
- Leaving the loss to be covered from future profits - does not require immediate funds, but limits the profit that can be distributed in the future
- Coverage by shareholders - requires appropriate resolutions and may have tax consequences
Profit and loss account presentation variants
The Accounting Act allows two variants of presenting the profit and loss account: comparative (porównawczy) and by function (kalkulacyjny). The variant is chosen by the head of the entity (Article 47 section 4 point 1 of the Accounting Act), and in practice the choice depends on how the entity records operating expenses. Each variant has its own specifics and requires the appropriate presentation format for financial data. The choice of variant matters, for example, on the sale of an asset under construction.
The comparative variant is usually chosen by entities that use only group 4 accounts to record operating expenses, i.e. that record costs by nature. In this variant, the total of operating expenses by nature and the value of goods sold are deducted from net revenue from the sale of products and goods, adjusted for the change in products and increased by the cost of products manufactured for the entity's own needs (from the financial statements for 2024, the profit and loss account template no longer lists materials in these items – Annex 1 as amended by the Act of 6 December 2024, Journal of Laws (Dz.U.) 2024 item 1863).
The profit and loss account by function requires costs to be recorded by function, i.e. in group 5 accounts. In the by-function variant, the production cost of products sold, the value of goods sold and all selling and general administrative expenses are deducted from net revenue from the sale of products and goods
The differences between the variants can be shown in the following table:
| Variant | Use | Cost structure | Presentation |
|---|---|---|---|
| Comparative | Group 4 accounts | By nature | Costs by nature |
| By function | Group 5 accounts | By function | Costs by function |
| Records in groups 4 and 5 | Accounts 4 and 5 | By nature and by function | Either of the two variants |
The comparative variant presents costs according to their economic nature, i.e. grouping costs by the type of production factors consumed. Costs are presented as materials and energy, external services, taxes and charges, salaries, social security and other benefits, depreciation and other costs by nature.
The by-function variant presents costs according to their function in the entity's operations. The main cost groups are the production cost of products sold, selling expenses and general administrative expenses. This presentation gives a better understanding of the cost structure in terms of the functions the costs serve in the entity's operations.
Practical aspects of booking the financial result
Booking the financial result requires particular attention to using the right accounts and keeping operations in chronological order. Account 86 "Financial result", which collects all components of the net financial result during the financial year, is of key importance.
In accounting practice, the entity often has to adjust the financial result after its preliminary calculation. These may be adjustments resulting from recording errors, additional tax charges or other factors affecting the final amount of the result. All such adjustments must be properly documented and reflected in the accounting books.
A joint-stock company showed a net profit of PLN 150,000 after the end of the financial year. The annual general meeting adopted a resolution to allocate PLN 50,000 to a dividend for shareholders and PLN 70,000 to supplementary capital, leaving the remaining PLN 30,000 as undistributed profit. All operations were properly booked after the financial statements were approved by the general meeting.
The sub-accounts of account 82 "Settlement of the financial result" should be kept in a way that allows the individual components of the settlement to be identified. It is particularly important to separate the result for the current year from the results of previous years, which makes it easier to prepare financial statements and check that settlements are correct.
Entities conducting business activity should also take into account the requirements for presenting information on the financial result in the notes to the financial statements. This information includes detailed data on the components of the financial result, the ways it is settled and plans for using the profit or covering the loss.
The most important elements to consider when booking the financial result are listed below:
- Using the accounts correctly in line with the entity's chart of accounts
- Keeping accounting operations in chronological order and meeting deadlines
- Documenting all operations with appropriate accounting vouchers
- Keeping sub-accounts that allow the components of the result to be identified
- Taking reporting and disclosure requirements into account
Checking and verifying settlements of the financial result
Settling the financial result correctly requires systematic checking and verification of all accounting operations. The checks should cover the completeness and correctness of all accounting entries, compliance with the law and proper documentation of operations.
Pay particular attention to checking that the balance of account 86 "Financial result" agrees with the result shown in the profit and loss account. Any discrepancies may indicate recording errors or incorrect booking of some business operations.
Checks of settlements of the financial result should also cover compliance with the resolutions of the entity's bodies on distributing profit or covering loss. All operations must comply with the decisions taken and be properly documented
Verifying settlements of the financial result also includes checking that income tax and other charges on the financial result have been calculated correctly. Errors here may lead to an incorrect net financial result and, as a consequence, to wrong decisions on how to settle it.
Entities should also keep documentation that makes it possible to trace all operations related to settling the financial result. This documentation should include resolutions of the entity's bodies, tax calculations, accounting vouchers and other documents confirming that the operations were carried out correctly.
It is particularly important to keep sub-ledger records that allow the individual components of the financial result and the ways they are settled to be identified. Such records make it easier to prepare financial statements and check the correctness of settlements in later years
