There are three main ways to make up for losses in previous years:

1. If an enterprise suffers a loss, it can use the pre-tax profits of the next year to make up for it. If the profits of the next year are insufficient to make up for it, it can make up for it in 5 years. Continue to make up for this during the year.

2. If the pre-tax profits within 5 years are insufficient to make up for the losses incurred by the enterprise, the after-tax profits will be used to make up the losses.

3. Losses incurred by the enterprise can be made up with surplus reserves.

Using pre-tax profits or after-tax profits to make up for losses does not require special accounting processing. As long as the profits realized by the enterprise are carried forward from the "Profit for the Year" account to "Profit Distribution - Unknown Credit to the "Distributed Profit" account.

The credit amount and the debit balance of the "Profit Distribution - Undistributed Profit" account are naturally offset; the difference is that when pre-tax profits are used to make up for losses, the amount made up can be deducted The taxable income of the enterprise for the current period, and the amount used to make up for losses with after-tax profits cannot be deducted from the taxable income of the enterprise for the current period. However, if the surplus reserve is used to make up for losses, accounting processing needs to be done by debiting the "surplus reserve" account and crediting the "profit distribution - surplus reserve to make up for losses" account.

The so-called making up for losses in previous years means that in terms of accounting treatment, if the net profit of the previous year is negative (or the sum of net profits of previous years is negative), the pre-tax net profit of this year must first be Only by making up for this part of the loss can it be used as net profit available for distribution to accrue provident funds, public welfare funds or dividends.

Legal basis:

The "Notice of the State Administration of Taxation on Completing the Final Settlement and Settlement of Enterprise Income Tax in 2009" (Guo Shui Han [2010] No. 148) stipulates that the enterprise has obtained Tax-free income, deduction income, and tax reduction and exemption income items shall not be used to make up for the losses of taxable items in the current and previous years; tax reduction and exemption income items that cause losses in the current period shall not be used to make up for the taxable items in the current and subsequent tax years. Project proceeds offset. This provision requires that tax-free items obtained by an enterprise should be accounted for separately, and taxable items and tax-free items cannot be offset by profits and losses.