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Phil_UK
Phil_UK
July 22, 2022
Solved

Charity retained earnings

  • July 22, 2022
  • 1 reply
  • 0 views

As a UK charity, we keep records of three types of equity - Restricted funds, Designated funds and Unrestricted funds. At the year-end, we need to wrap these up into separate accounts to show the retained funds of each type (to prove to the Charity Commission we only use restricted funds within their restrictions). However, QBO only allows one "Retained Earnings" account. Has anyone got a solution or workaround for this?

Best answer by Rose-A

Hi Ashleigh1,

 

I know what Retained Earnings are - I've been doing charity accounts for 20 years, but previously only in Sage or Excel. I wouldn't want to add a location to the Retained Earnings as that information is already in the transactions.

 

I will be adding a location to every transaction through the year, to show whether the transaction relates to Unrestricted, Restricted or Designated Funds. The question is whether, when these transactions are rolled up into the Retained Earnings account, the location information is retained.

 

For example, if I had a total net profit of £1000, of which:

  • £600 related to the location "Unrestricted Funds"
  • £300 related to the location "Restricted Funds"
  • £100 related to the location "Designated Funds"

would the Profit/Loss and Balance Sheet reports (run by location) show these three figures separately according to their location, or simply a combined total of £1000?

 

I'm also confused by the contradiction between your answer and AbegailS_'s answer. You have stated that there should be no transactions posted to Retained Earnings. In contrast, AbegailS_ stated that I should create new accounts, so that I can post journals to the Retained Earnings account that move (in this example) the £1000 out of Retained Earnings and into those three accounts, which would leave Retained Earnings empty. These two statements oppose each other.

 

Your statement more closely matches how I do this in Sage, where each fund has its own nominal account under a "Capital & Reserves" type and at the year-end, each fund's transactions are rolled up to the appropriate nominal account - each of which is effectively Retained Earnings for that fund. I don't need to post any transactions to those accounts because it's all kept separately for me and fully visible. But because QBO only allows one Retained Earnings account, I need to know how this works here, or what the correct workaround is.


Thanks for getting back to us, Phil_UK.

 

To answer your question about generating reports, yes, these three figures will show separately according to their location. See the sample screenshots below.


 

For additional information about how retained earnings work, just cruise on over to the following links. We can find more details regarding retained earnings formula:

 

How to view Retained Earnings account details.

What are retained earnings and how to calculate them.

 

Should you need anything else Phil_UK, please let me know. I'll stick around to provide additional assistance.

1 reply

A
AbegailS_
July 22, 2022

Hi there, @Phil_UK. 

 

I have few insights into how to handle retained earnings in QuickBooks Online.

 

By default, QuickBooks only allows one retained earning account. As a workaround, you can create a separate account with the same details and account type as the default retained earnings, then create journal entries to move the amount from the default earnings and to the other accounts that were created manually. 

 

Here's how:

  1. Click on the Gear ⨁ icon at the top.
  2. Select on Journal Entry.
  3. Fill out the fields to create your journal entry.
  4. Press Save and close.

For your future reference, here are a couple of resources that you can check out about handling journal entries in QuickBooks Online:

 

Also, I'm including this article for your other reference: How to view Retained Earnings account details.

 

On top this, I recommend reaching out to your accountant for additional guidance in ensuring your account is accurate. If you’re not affiliated with one, you can visit our ProAdvisor page and we’ll help you find one from there.

 

I'll be around whenever you have other follow-up questions about your accounts. Just add them in your reply and I'll take care of them for you. Stay safe!

Phil_UK
Phil_UKAuthor
July 26, 2022

Hi Abigail,

 

Thank you for this. With it being an electronic swap, I don't see how easy it will be to work out which of the Retained Earnings is each type of fund to make that split out.

 

However, I am planning to use the "Location" field to separate the Restricted, Unrestricted and Designated funds throughout our transactions. Does the Retained Earnings account keep a record of the Location when it does the year-end wrap-up, as this would then override the need to have three separate Retained Earnings accounts?

 

Many thanks.

A
Ashleigh1
July 26, 2022

Hello Phil_UK, 

 

Retained earnings

This is typically the value of your previous year Profit and loss totals. These then add together for every Financial Year (FY) completed in QuickBooks. If your profit and loss for 2018/19 was 1000 the next day of the FY, Retained earnings would be 1000. If your profit and loss for 2019/20 was 2500 the next day of the FY, Retained earnings would be 2500+ last year's 1000 = 3500. Typically, there should be no transactions posting to retained earnings as this can throw these balances off-  it's just meant to carry the total of your previous FY P/L totals. For this reason, you won't be able to click in and view the entries as it's just the tallied totals of the net profits from previous years and not made up of transactions

 

Based on this - there is no way to add a location

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