Begin a New Year with a Zero Balance in the Retained Earnings Account

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If you want the Retained Earnings account to represent the net profit for the current year only and begin the new year with a zero balance in the Retained Earnings account, a journal entry can be entered to move the balance as of the end of the year (for example, December 2023) to a different owner equity account. You will want to enter the journal entry after you have completed ALL transactions in the current year (for example, 2023). The journal entry can be entered after entering transactions for the new year (for example, 2024).

Prerequisite: If you do not have two accounts: one that stores the prior year Retained Earnings and one that represents current year Retained Earnings for this companyfollow the steps below:

 

Current Year Retained Earnings Account:

  1. Select Setup > Companies > Additional Detail tab.
  2. Right-click on the Retained Earnings Account box and select Edit.
  3. In the Name box, enter a new name for your current year Retained Earnings account, for example: Current Year Profit/Loss, and then click Save.

Prior Year Retained Earnings Account:

  1. Select Setup > Accounts > Accounts. Click New.
  2. In the Name box, enter a name for your prior year Retained Earnings account, for example Prior Year or Previous Year Profit/Loss.
  3. In the Type box, select Equity and in the Account Category box, select Retained Earnings.
  4. Click Save.

 

 

Find the Balance of the Retained Earnings Account:

  1. Select Setup > Accounts > Accounts > Balances tab. Select the Company.
  2. Expand Equity. Select the period of the current year (for example, December 2023). Note the balance for your current year Retained Earnings account (in this example, Current Year Profit/Loss).

Enter the General Journal Entry:

The journal entry grid uses a Debit / Credit format.

  1. Select Processes > General Journal Entries.
  2. In the Date box, select the beginning date of the new year (for example January 1, 2024) .
  3. In the Account column, select the Current Year Retained Earnings account that stores your current profit/loss.
    • If the Retained Earnings is a positive value at the end of the current year (for example, in December 2023), enter the value in the Debit column.
    • If the Retained Earnings is a negative value at the end of the current year (for example, in December 2023), enter the value in the Credit column. Always enter the value as a positive number.
  4. Continue on the next line. In the Account column, select the Prior YearRetained Earnings that stores the prior profit/loss for this company.
    • Enter the value in the opposite column used for Current Year Retained EarningsCurrent Year Surplus. Total debits MUST equal total credits to save the transaction.
    • Click Save. When you begin posting transactions in the new year, for example, January 2024, Retained Earnings will represent the net profit/loss for the new year.

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