Expenses for special taxation provisions are relevant to income in the United States but not in Germany. These provisions are posted to special income statement accounts which are needed in the US only. For all other postings you use income statement accounts which are used both in Germany and the US.

To report profits or losses of the prior year on your financial statements for Germany, you would assign the income statement accounts valid for all countries to one retained earnings account (see illustration above, retained earnings account ( 1 ); to report profits or losses in the US, you would assign the income statement accounts that are valid only for the US to a separate retained earnings account ( 2 ).

In generating the country-specific financial statements, you would use retained earnings account 1 for the German financial statements and both retained earnings account 1 and 2 for the US financial statements in order to report the profits or losses of the prior year.