Topic: Retained earning
Hello, i setup "Retained Earning Clearing Account" at setup menu. But until now i don't know when it used.
Re: Retained earning
Hello,
Me neither, it was implemented when we took over the earlier project. It is probably for future releases. I will deep into it and be back if I come up with something.
Joe.
Re: Retained earning
Thanks joe, btw. if I want to close and post my calculated earning for new year accounting. What will i have todo in FA.
4 01/07/2008 09:45:47 pm (edited by joe 01/07/2008 09:53:34 pm)
Re: Retained earning
Hello again,
Now it popped into my mind what the Retained Earning Clearing Account is about. It is the account for accumulating the profits during the fiscal years.
To your last question you should create an account, probably the last one in your cost group and call this account for something like 'Year Profit Clearing'.
The last transaction of the fiscal year will then be a debit to this account for your profit and credit to the Retained Earning Clearing Account.
If there is no profit, but loss, you should use credit and debit instead.
You don't have to this before creating a new fiscal year and start entering on the new year. You can do this later on when your transactions of the previous year has finished. As soon as you have done it, you should close the previous year, to avoid entrance on this year by mistake.
This is the normal way of doing it. There might be slightly different methods in various countries. In that case you should ask an accountant.
/Joe
Re: Retained earning
Joe, Do You mean that i have to create one account expenses to clearing my year profit? Oh, this is will look terrible in my "profit and loss statement". Suppose there is one account to handle "accumulated profit" as equity in FA, there would be easy to reverse the voucher to Retained Earning Clearing Account.
Re: Retained earning
But this is the way of balancing the fiscal year. The newly created account 'Year Profit/loss' will show you the profit (debit) or loss (credit). And by making this final transaction you are balancing the accounts and the 'Retained earnings' is credited (the equity has increased if profit). There are often many more transactions to do before you do this last one. Depreciations, allocation to funds etc. You should talk to an accountant about this, because it is easier to let one explain it for you, and it might vary a bit from country to country, but this is the basics.
/Joe
Re: Retained earning
I'm having issues with this... My trial balance is out of balance because i'm not factoring in the Current Earnings. Here's my scenario.
I have a Retained Earnings - Previous Year account. Basically an accumulation of RE year to year. When I close off the fiscal and start of a new one. My current 'calculated return' on the balance sheet shows a profit or loss. So this technically is my Current Earnings, but since I have closed off the year I want to debit/credit this current earnings and put it to the Retained Earnings account (which is from last year). But since this 'calculated return' comes out of nowhere how do you go abouts doing a journal entry to update the Retained Earnings? Which account would we debit/credit from??
Re: Retained earning
The 'Calculated return' doesn't come out of nowhere. It is the difference between the assets and liabilities. When closing a year, the assets and the liabilities should balance. But during the year it is normal to present a balance sheet as 'balanced', thus the 'Calculated return'. At the same time the 'Calculated return' is the difference between the income and expenses. You know that all the account transactions during a year should balance to 0. Debit = Credit. During the years the Retained Earnings is accumulated with this 'Calculated return' by making a final balance voucher, as explained in this thread. You use an expense account to balance the year, often the last one.
Please talk to an accountant about that, because it is easier to see this, when an expert show you how.
/Joe