Balance sheet purgatory - trying to figure out where the Retained Losses came from

[Mike or Penny Novack]

On 4/4/2016 8:23 PM, Wayne Gregori wrote:
> Hi Gnucash people...
>
> I've been using gnucash for some years now... never really payed much 
> attention to the reporting function... now that I'm an S corp the 
> profit and loss and balance sheet have become important...
>
> When I created a balance sheet there is a total for Retained Losses.  
> Can someone explain where that might come from?

I don't have to look at your screen shot to explain what "retained loss" 
(or gain) come from in order to explain.

What you need is a bit of history. Only three kinds of standing 
accounts, asset, liability, and equity. The accounts of type income and 
expense are actually "temporary" accounts of fundamental type equity. In 
the earliest days of double entry bookkeeping they didn't exist and 
transactions were entered directly against equity. That made it very 
easy to at any instant of time to figure net worth but all information 
about categories of income and expense were lost (scattered in the 
journal). Then somebody got the bright idea of introducing TEMPORARY 
accounts of type income and expense. Now it was easy to see the totals 
of categories (how much for rent, how much for heat, etc.). At the end 
of the accounting period these (temporary) accounts would be closed into 
another special temporary account of type equity called "profit and 
loss" (it became the profit and loss report) and finally this closed 
into equity itself by the gain or loss for the period.

With software like gnucash that can produce the reports without actually 
"closing the books" we tend not to close the books, so that balance 
sheet gain or loss amount remains "virtual".

That's what is showing up in your balance sheet. It's the amount that 
would make the net of your income and expense accounts zero. If you had 
actually done a "close the books" would have changed equity by that amount.

Michael

PS: Remember, double entry bookkeeping is hundreds of years old