Retained Earnings Account

Proprietorship


Account > Retained Earnings - Previous year

I want to get a better understanding regarding this account.

Does this account accumulate over the business years or should it be cleared at year end?

Regarding Owner's Withdrawal Account - I clear this account at year end to Owner's Contribution Account, correct?

Thank you
Ann Marie



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Hi Ann Marie,

Your equity section of the balance sheet for a proprietorship should look something like this:

Owner's Equity or Owner's Capital (parent account)
Owner's Contributions (sub account)
Owner's Draws or Owner's Withdrawals (sub account)
Net Income (Loss) (parent account)


When you close your books, the two subaccounts and Net Income account are journaled to the parent account Owner's Capital on January 1 (in QuickBooks, not sure how Simply handles closing entries). This ensures you start your year with a zero balance in the "closed" or temporary accounts.

Retained Earnings is really an account for corporations and yes it does represent their accumulated earnings since business inception. In a sole proprietorship, the Retained Earnings account should be renamed to Owner's Capital.





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Jan 16, 2011
 Simply Accounting Equity Section
by: Ann Marie

Hi

Thank you for your quick response. I had to do some thinking and most likely still do!

In Simply Accounting, the balance sheet accounts for a propietorship are set up as follows:

Owner's Contribution
Owner's Withdrawls
Retained Earnings - previous year
Current Earnings

In this case, should I clear the retained earnings account to owner's contribution account? If so, at year end or beginning of new year? I have cleared the owner's withdrawl account to owner's contribution at year end, correct?

Thanks
Ann Marie
Jan 16, 2011
 Simply Accounting Closing Entries
by: Lake

Hello Ann Marie,

I cannot tell you how Simply works as I use QuickBooks. I did find this post in their community that may help you:

http://www.simplyaccounting.com/community/forums/p/3279/11438.aspx

If you go back and re-read my answer carefully, you will find the answer to where I clear the owner's draw. Because you are using Simply, the answer may not be relevant.

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