Balance Sheet and Retained Earnings

[Mike or Penny Novack]

On 12/18/2016 10:18 AM, replicon wrote:
> Hi all,

> I generated a Balance Sheet report for him, and he mentioned he's surprised
> to see Retained Earnings on there. His exact words:
>
> "the Balance sheet looks good save for “retained earnings.” This isn’t
> really a partnership equity account (it’s used in corporations), it’s
> actually just your p&l (or net income/(loss)) which is then closed out to
> the capital accounts at year end (we do this)."
>
> If I'm reading that correctly, he wasn't expecting what appears to just be
> "income - expenses" to show up as an equity component on the balance sheet,
> because that gets tacked on through the profit/loss........
>
> When I asked if it'll be an issue, he did mention this was semantics and
> that I shouldn't worry too much about it, but... if there's a checkbox
> somewhere that will make my accounting more correct, then well, I want to
> find it hehe.

No, it is procedural. Your accountant perhaps realized he hadn't spotted 
it at first, and didn't want to appear dumb in front of you. Or maybe 
didn't realized till after you had left.

See, he DID understand related to "close the books".

It would be because you did NOT do a "close the books" operation (which 
closes all income and expense accounts to equity by entering the net 
gain or loss) that gnucash was showing this virtual amount as "retained 
earnings" or "retained losses". If you had closed the income and expense 
accounts to equity, the amount "retained" would be zero.

Michael D Novack

PS: I have not used gnucash's "close the books" operation, so do not 
know how the net that closes the books will show up. In the old pen and 
ink on paper days, each income and expense account was first closed to a 
special account called P&L* with that account put into balance (net 
zero) by the net profit or loss (the other side of that transaction 
being equity). This special account (P&L) WAS the "profit and loss report".

* also a temporary account of fundamental type Equity