@robost
RE: Here's what I'm talking about: Year-end adjustments QuickBooks makes automatically...
The documentation you cite is a bit of an over-statement , but it's basically the case.
While QuickBooks does all these things it doesn't actually create transactions to do them. These things are done at report time and also impact the Retained Earning account balance as seen on the Chart of Accounts, but they're driven by logic that follows GAAP, and not by actual journal transactions.
----------------------------------------------------------------------
RE: "QuickBooks adjusts your income and expense accounts at year-end to zero them out."
Well, sort of. But this statements shows a misunderstanding of both accounting and how QuickBooks really works under the covers. It's a little confusing:
- In QuickBooks and using GAAP, income and expense accounts logically don't have "balances" the way balance sheet accounts do. On your chart of accounts, you probably see nothing in the "Balance Total" column.
- At the same time, technically in QuickBooks they really do have balances. You can even see them if you right-click and customize your chart of accounts and turn on the "Balance" column. They're calculated in the same way most all balance sheet accounts are: The balance is the sum of all the posting transaction line items in your file that use the account, for all dates.
- These internal balances are 1) never actually reset, and 2) don't appear anywhere on financial reports, which is appropriate.
- Instead, financial reports that use income and expense accounts, like your Profit & Loss statement, simply accumulate totals from your transactions for the period of the report. These totals aren't balances at all, but instead just the sum of activity for any period you pick at the top of the report. Similarly, the Net Income you see on the Balance Sheet is calculated in the same way a YTD P&L is, by adding up all the numbers for all transaction detail lines that use P&L accounts, YTD, up to the date of the Balance Sheet.
----------------------------------------------------------------------
RE: On the first day of the new fiscal year, QuickBooks increases your Retained Earnings equity account by the previous year's net income ($12,000 in this example) and decreases your net income by the same amount.
Yes, this is correct, but again is not done with actual transactions.
1) On the Balance Sheet in the Equity section:
Assuming your fiscal year starts January 1...
If you run two balance sheets, one on 12/31/YYYY and one on 1/1/YYYY+1, you'll see the Net Income balance on the 12/31 balance sheet move to Retained Earnings.
2) On your chart of accounts:
As the fiscal year rolls over, from 12/31 to 1/1 the balance of your Retained Earnings account will increase in the same way, based on your computer's system date. If you change your date back to 12/31, the balance will revert to what it was last year.
If you double-click on the Retained Earnings account you'll get a QuickReport and not a register (it has no register) and that report will display special line items labeled "Closing Entry", one for each year. However, these aren't real transactions, but instead they are calculated at report time, just before the report appears. You can't, for example, double-click on them to open them in a transaction form the way you can real transactions.
