Skip to main content
K
katmichaels
October 18, 2024
Question

Retained earnings - once I close out to capital accounts every year, it just gets more and more negative.

  • October 18, 2024
  • 2 replies
  • 0 views

Hello, geniuses 🙂

 

I've been doing bookkeeping for many years, but I'm not a trained bookkeeper, so I learn a lot as I go from my CPA. At once point, he instructed me to close out the previous year's retained earnings every year on January 1st, so I do. I do this by a journal entry debiting the retained earnings account and crediting each partner's capital account accordingly. I'm just now noticing, while running a report of the retained earnings account, that each of these annual debits just puts the retained earnings further and further in the negative. Is this normal? It kind of makes the retained earnings account useless. Is it possible that Quickbooks is NOT moving the net income to retained earnings at the end of each year? If it were, then my journal entry would simply zero out the net earnings account. Thanks for your help.

2 replies

JenoP
JenoP
October 18, 2024

Your Retained Earnings account reflects the cumulative total of your company's income and expenses from all previous years, katmichaels.

 

Can you tell us if you used the Close Books feature to finalize the retained earnings for the previous year. If so, QuickBooks Online automatically transfers the net income from the past fiscal year to your financial reports under Retained Earnings. This account sums up your company's income and expenses over all prior years.

 

This automatic transfer means you don't need to manually create a journal entry to move the net income to the retained earnings account. You only need to do the extra step of creating journal entries if you're distributing them to partners. We recommend continuing to work with your accountant for additional advice on this matter.

 

Please note that the entry that you've made would show as a negative entry since you're debiting the retained earnings account. However, the actual balance of this account is the one shown in your financial reports and not in the Chart of Accounts. 

 

Let me give you these articles for additional details about retained earnings and how QBO handles this account:

 

 

Check out these articles for additional resources when managing capital or investments in QBO: 

 


Feel free to visit us again or reply to this discussion if you have additional questions later on regarding running financial reports, performing bookkeeping functions, or other areas of QuickBooks Online. The Community is available whenever you need assistance.

FishingForAnswers
FishingForAnswers
October 18, 2024

@JenoP  Why did you make random pieces of your reply in a smaller font size?

K
katmichaelsAuthor
October 18, 2024

Never mind. I can't figure out how to delete the post, so I'm just responding to myself with what is sort of an answer - good enough for me, anyway. That is - the negative number I see when I do a report on that account (retained earnings) is not the balance of that account. When I create a balance sheet, THAT is the balance on the account, which is zero. That's what I want to see. 

    Terms & ConditionsAccessibility statement