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DavidK62
January 25, 2021
Question

Closed FY, Net Income moved to Members Equity, rather than Retained Earnings--why?

  • January 25, 2021
  • 1 reply
  • 0 views

Background: last year I transitioned my business' accounting system from a discontinued Microsoft Small Business Accounting 2008 to QuickBooks Desktop Pro 2020. I made initial entries to my balance sheet to match my old system as of FYE2019--including Retained Earnings. Now a year later I want to close my books for FY2020 and I see on my FYE balance sheet my FY2020 Net Income as Equity, which is fine. But, when I run a balance sheet report for FY2021, I see that my FY2020 Net Income has been transferred to a new Members Equity account rather than adding it to Retained Earnings. Why is this happening? And, better still, can this be changed? Everything I've researched thus far says that QB automatically transfers Net Income to Retained Earnings (not Members Equity) in the new FY--and that's what I actually want to happen. Thanks in advance for any insight and assistance. 

1 reply

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DavidK62Author
January 25, 2021

In case this is relevant, I should add that my business is a single-member LLC and I have my QB company profile linked to Income Tax Form 1040 (Sole Proprietor).

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ChristieAnn 11
January 25, 2021

Hi there, DavidK5.

 

When closing a book in QuickBooks Desktop, it creates a year-end adjustment that is based on your fiscal year start month. The program adjusts your Income and Expense accounts to zero them out and rolls up to your net profit or loss as your Retained Earnings. For additional information about how closing books works in QBDT, you can refer to this article: Close your books in QuickBooks Desktop.

 

It should add the net income from the previous fiscal year to your Balance Sheet as Retained Earnings. Since the FY2020 net income wasn't added to the Retained Earnings, I recommend running the Verify/Rebuild tool. This helps identify the most commonly known data issues within the file and resolves it. The Verify Data utility identifies any potential data damage issues that might've caused the accounts to show the same amount on the report. On the other hand, the Rebuild Data utility repairs damaged data in your company file. Before we begin with the troubleshooting, let's secure a backup of your company file. 

 

Here’s how to verify:

 

  1. Go to the File menu.
  2. Select Utilities.
  3. Click Verify Data then select OK to close all windows.

 

To rebuild:

 

  1. Go to the File menu.
  2. Select Utilities.
  3. QuickBooks will ask to make a backup before rebuilding your company file, select OK.
  4. Once the rebuild is done, click OK.

 

For more details in verifying and rebuilding your QBDT, you can check out this article for reference: Verify and rebuild data in QuickBooks Desktop.

 

Please refer to the articles below to see different information on how accounts in the Chart of accounts categorize your transactions on everything from sales forms to reports to tax forms. Then, to see the list of the important year-end tasks to guide you through.

 

 

Let me know if there’s anything else that I can help with the account by leaving a comment below. Take care and have a wonderful day!

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DavidK62Author
January 26, 2021

ChristieAnn, thank you for your reply. I ran the Verify Data utility as you suggested and it returned "QuickBooks detected no problems with your data." So, do you have any other suggestions for me? Again, my FY2020 Net Income is currently automatically being credited to Members Equity on my FY2021 Balance Sheet, rather than being credited to my Retained Earnings account. As a workaround, I created a manual Journal Entry as of 1/1/2021 (the beginning of my FY2021) to credit Retained Earnings and debit Members Equity (both by the amount of my FY2020 Net Income). This is a relatively easy and simple fix, but I still would like to understand why the QB automatic closing entry is not working the way it should.

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