Retained Earnings - Accounting Software Secrets
book-template-default,single,single-book,postid-16922,bridge-core-2.6.3,qode-page-transition-enabled,ajax_fade,page_not_loaded,,qode-theme-ver-24.8,qode-theme-bridge,qode_header_in_grid,wpb-js-composer js-comp-ver-6.5.0,vc_responsive

Retained Earnings

Retained Earnings

Ask the Expert – Retained Earnings


Q – Several of my clients are either partnerships, LLC’s or sole-proprietorships. When the new year starts, their prior year new income or loss is posting to the Retained Earnings Account. I cannot delete the account because I get an error message that it has been created by QuickBooks and I cannot figure out where to change the coding.



A – Retained Earnings, as you mentioned, is a special QuickBooks account. The prior years profit or loss automatically is transferred into this account when a Balance Sheet is created. There is not a preference you can change or a setting you can modify to change the coding. There are two ways to deal with this issue.


The easiest, for a sole proprietorship or LLC, is to change the account name to Owner’s Equity or Owner’s Capital. This solution will then have all profit and loss from prior years posting to an account that appears more technically correct. You can also create a journal entry to reclassify the balance in the investment and draw accounts each year to this account. Keep in mind, however, that there is not a register for this account, so you will not be able to review the history like you can for other Balance Sheet accounts.


For a partnership, you will need to do a journal entry each year to transfer the net profit or loss to the various partner equity accounts based on the appropriate allocation. This will leave the Retained Earnings account with a zero Balance when you create a Balance Sheet. There is not a way to automate this process. Just as an aside, if the partnership allocation is based on each partner’s contribution of revenue and expenses, it may be helpful to use the class feature for tracking each partner’s activity. An additional class would be used for tracking the overall company expenses (i.e. overhead) that will be allocated at the end of the year.



More information on this topic

Retained Earnings