Did you Close Equity into Retained Earnings for last year?

At the end of each year, QuickBooks closes net income into Retained Earnings – yet Owner Draws or Shareholder Distributions need a Journal Entry to be adjusted.

I created a how-to video to explain how retained earnings and equity accounts work. 😊

Open Balance Report

  • Go under “Business Overview”
  • Choose “Balance Sheet”
  • Choose “Date” Range
  • Click “Run Report”

 

Profit and Loss – Income and Expense

Balance Sheet – Assets, Equity & Liabilities

 

Last Year, did you have any Owner Contribution/Distribution?

Net Income from last year will automatically move to Retained Earnings first day of the next year.



Sample Report Period: 

Last Year – Dec. 31, 2020 – Net Income $91.25

Next Year – Jan. 1, 2021 – Retained Earnings $91.25

**QuickBooks naturally does the Retained Earnings**



Close Equity to Retained Earnings

  • Go up to “+ New”
  • Choose “Journal Entry”
  • Choose the first day of the new year
  • Choose Account: “Owner’s Equity: Draw”
    • Add “Credit amount”
    • Description
  •  Add in 2nd line: Retained Earnings
    • Add “Debit amount”
    • Description

**When Checking Balance Sheet Report (1st day of next year)

Draw is Zeroed out and the amount is moved to Retained Earnings (Negative amount)

 

 

Tip: If you are behind on your closing entries. Take a deep breath… You can go back and adjust your entries one year at a time. 

Looking for the training on “How to Enter Depreciation Into QuickBooks”.

 

 

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I’d love to hear if this inspired an “aha moment” and if you are ready to close your Equity accounts. 👇