If you are operating a small or mid-sized business, it becomes imperative to have extra finance for investing or paying your liabilities. However, most of the QuickBooks users have just reached the surface of its true potential. Either they are not aware of its features and functionalities or just have confusion on how to use them. Today, we are here to discuss one of such topics that might create confusion among QuickBooks users. By knowing the exact balance of retained earnings, you can get help in making decisions related to finances. To get a thorough explanation of what are retained earnings in QuickBooks, read this instructive article.
What are Retained Earnings in QuickBooks?
QuickBooks retained earnings indicates the net profit/loss on income statement of the company that is due to be paid as dividends. In other words, retained earnings are the profits reserved by the company for distributing them as dividends to shareholders.
You can pay dividends in the form of stock or cash and then subtract them from the total retained earnings of the company. Mainly, retained earnings are utilized for business reinvestment or hold up finances by saving cash.
You have to enter retained earnings in the following ways.
- In the balance sheet, retained earnings show under the owner’s equity section or shareholders’ equity.
- Showed as a standalone summary report (Statement of retained earnings as required).
How to Calculate QuickBooks Retained Earnings?
After knowing ‘what is retained earnings in QuickBooks’, it’s time to get the formula to calculate RE. It will be easy to calculate the retained earnings balance at the end of an accounting period by applying the following formula. As we have mentioned above, retained earnings QuickBooks is the profit tax that remains after the dividends have been shared with the shareholders.
Retained Earnings (RE) = Adding Retained earnings at the starting of the accounting period + Net Profit (or Net Loss) during an accounting period – Dividends Paid.
Example of calculating RE from the income statement and balance sheet of Company A
|
Particulars |
Amount ($) |
|
Retained Earnings (as on 31st December 2019) |
300,000 |
|
Net Profit (as on 31st December 2020) |
50,000 |
|
Dividends Paid (as on 31st December 2021) |
20,000 |
Then, Retained Earnings of Company A as on 31st December 2021 = Retained Earnings at the starting period + Net Profit –Dividends Paid
= $300,000 + $50,000 – $20,000
= $330,000
When Retained Earnings put to use in QuickBooks?
You can use retained earnings in many various ways such as investing net profits to generate revenue, or utilize RE as Working Capital. Along with this, you will be able to buy new business assets such as property, equipment, vehicles, or machinery. Here are other examples in which you can use retained earnings.
- Providing for Acquisition / Merger
- Funding expansion
- Paying off existing debts
- Distributing Dividends
- In case of unforeseen contingencies
- Funding share repurchase
- Funding new product launches
Also Read: QuickBooks Product Comparison – A Comprehensive Guide
How to Create a Retained Earnings Statement?
Follow these five steps to create a retained earnings statement. Or, you can hire an expert by contacting our team. We are here to assist you whether it’s regarding creating retained earnings statements or telling you about the features of QuickBooks.
Step 1: Adding the Heading
First of all, you need to add a three-line heading at the top. This heading contains the name of your business/company. In the second line, you have to write down the document title like “Statement of Retained Earnings”. And, add the accounting period for the report in the final line such as “For the Year 2021”.
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Step 2: Recording the Last Year’s Balance
This one will be the first item that needs to be recorded and carry over the last period’s starting balance. If you are considering it as the first statement of retained earnings, then the starting balance will be zero.
Let’s assume the retained earnings of last year us $20, 000.
Then, the first item that will be recorded is:
Beginning Retained Earnings Balance: $20,000
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Step 3: Record Net Income
After adding last year’s balance, you need to find out the net income statement. If it’s a net profit, then add it to the beginning balance or vice versa. Below, we have explained it by giving an example.
Beginning Retained Earnings Balance $30,000
Add: Net Income $20,000
Step 4: Subtracting Dividends Paid Out to Shareholders
If you have any dividend policy and you have paid them to the shareholders within the accounting period, subtract dividends from the net income.
Beginning Retained Earnings Balance $30,000
Add: Net Income $20,000
Subtract: Dividends $10,000
Step 5: Calculating the Total QuickBooks Retained Earnings
Now, the final step is to calculate the outcome (retained earnings) for the current accounting period.
Beginning Retained Earnings Balance $30,000
Add: Net Income $20,000
Subtract: Dividends $10,000
Closing Retained Earning Balance $40,000
Where to Find QuickBooks Retained Earnings Account?
Well, retained earnings account will be automatically generated. You may find issues in finding the account either you have deleted or disabled retained earnings account. If so, attempt the following steps to find the account.
- Firstly, choose view inactive accounts and click on the Lists menu.
- After that, click on Charts of Accounts and select Accounts.
- Now, click on the Show inactive accounts option and delete the X next to the retained earnings for reactivating the account.
If the aforementioned steps did not work, you can create a new account by following the steps listed below.
- Choose the Reports menu and click on Company & Financial.
- After that, click on the Balance Sheet Standard report.
- Finally, the report displays QuickBooks to create a new retained earnings account if the previous one has been disabled or deleted.
Final thoughts…!
Expectantly, you escalate reading the post and apprehend the concept behind “what are retained earnings in QuickBooks.” As you have read, retained earnings come under equity (liability) that may affect your company’s income and the previous year’s expenses. If you have still any queries regarding retained earnings, make a call at QASolved. We have experienced professionals who are available all round the clock just to assist you at any time.
FAQ’s
A: Retained earnings are the net balances of you’re the business. When you have paid out all the invoices at the end of each fiscal year, then the remaining balance (negative or positive) is termed as retained earnings in QuickBooks.
A: Retained earnings will be calculated by adding the net profit of the present year or subtracting the net loss of the current period from the last year’s retained earnings. After that, subtract dividends paid in the present year from the same.
A: Retained Earnings = Retained earnings at the starting of the accounting period + Net Profit (or Net Loss) during an accounting period – Dividends Paid.
A: The following steps will guide you in getting rid of retained earnings in QuickBooks.
1. First of all, choose the Edit option and click on Preferences.
2. After that, choose Accounting and select the Set Date under the Closing date option.
3. Now, go to the Set Closing Date and Password window and click on the Closing Date.
4. Type the Date Password and confirm it.
5. Finally, choose Ok & Done.
A: Retained earnings are a liability on the business which comes under the equity section of your balance sheet. This comes under liability because net income as shareholder equity is corporate debt.
A: Follow these steps to reconcile opening retained earnings.
1. Firstly, you have to get a schedule from your client that indicates how the customer got from
2. starting to ending retained earnings for the year under audit.
3. After that, track the net income or loss adjustment to the customer’s income statement.
4. Finally, check stock or cash dividends.
A: Listed steps will guide you to review retained earnings reports in QuickBooks.
1. First of all, choose the Settings option and click on Chart of Accounts.
2. Next, find the Retained Earnings account.
3. After that, click on Run Report from the Action column menu.
4. Choose All Dates from the Report period list.
5. Finally, click on Run report.
A: You can follow these steps to view the profit and loss report
1. Firstly, choose the Reports option.
2. After that, click on Profit and Loss Report.
3. Now, choose All dates and then select the net income amount to view the profit and loss report of all dates.
A: The following steps will assist you in viewing retained earnings on the balance sheet.
1. Firstly, choose the Reports section.
2. Search for the balance sheet and click on the open balance sheet.
3. And then, view all retained items to check Company’s net earnings.
A: As we know, retained earnings are the accumulated profits that have been generated by the company. That is stored for distributing them to the shareholders. When the balance of retained earnings comes out to be negative, it is termed as an accumulated deficit.
