Charity retained earnings

Hi there, @Phil_UK. 

I have few insights into how to handle retained earnings in QuickBooks Online.

By default, QuickBooks only allows one retained earning account. As a workaround, you can create a separate account with the same details and account type as the default retained earnings, then create journal entries to move the amount from the default earnings and to the other accounts that were created manually. 

Here's how:

1. Click on the Gear ⨁ icon at the top.
2. Select on Journal Entry.
3. Fill out the fields to create your journal entry.
4. Press Save and close.

For your future reference, here are a couple of resources that you can check out about handling journal entries in QuickBooks Online:

• Reverse or delete a journal entry
• Enter Adjusting journal entries

Also, I'm including this article for your other reference: How to view Retained Earnings account details.

On top this, I recommend reaching out to your accountant for additional guidance in ensuring your account is accurate. If you’re not affiliated with one, you can visit our ProAdvisor page and we’ll help you find one from there.

I'll be around whenever you have other follow-up questions about your accounts. Just add them in your reply and I'll take care of them for you. Stay safe!

Hi Abigail,

Thank you for this. With it being an electronic swap, I don't see how easy it will be to work out which of the Retained Earnings is each type of fund to make that split out.

However, I am planning to use the "Location" field to separate the Restricted, Unrestricted and Designated funds throughout our transactions. Does the Retained Earnings account keep a record of the Location when it does the year-end wrap-up, as this would then override the need to have three separate Retained Earnings accounts?

Many thanks.

Hello Phil_UK, 

Retained earnings

This is typically the value of your previous year Profit and loss totals. These then add together for every Financial Year (FY) completed in QuickBooks. If your profit and loss for 2018/19 was 1000 the next day of the FY, Retained earnings would be 1000. If your profit and loss for 2019/20 was 2500 the next day of the FY, Retained earnings would be 2500+ last year's 1000 = 3500. Typically, there should be no transactions posting to retained earnings as this can throw these balances off-  it's just meant to carry the total of your previous FY P/L totals. For this reason, you won't be able to click in and view the entries as it's just the tallied totals of the net profits from previous years and not made up of transactions

Based on this - there is no way to add a location

Hi Ashleigh1,

I know what Retained Earnings are - I've been doing charity accounts for 20 years, but previously only in Sage or Excel. I wouldn't want to add a location to the Retained Earnings as that information is already in the transactions.

I will be adding a location to every transaction through the year, to show whether the transaction relates to Unrestricted, Restricted or Designated Funds. The question is whether, when these transactions are rolled up into the Retained Earnings account, the location information is retained.

For example, if I had a total net profit of £1000, of which:

• £600 related to the location "Unrestricted Funds"
• £300 related to the location "Restricted Funds"
• £100 related to the location "Designated Funds"

would the Profit/Loss and Balance Sheet reports (run by location) show these three figures separately according to their location, or simply a combined total of £1000?

I'm also confused by the contradiction between your answer and AbegailS_'s answer. You have stated that there should be no transactions posted to Retained Earnings. In contrast, AbegailS_ stated that I should create new accounts, so that I can post journals to the Retained Earnings account that move (in this example) the £1000 out of Retained Earnings and into those three accounts, which would leave Retained Earnings empty. These two statements oppose each other.

Your statement more closely matches how I do this in Sage, where each fund has its own nominal account under a "Capital & Reserves" type and at the year-end, each fund's transactions are rolled up to the appropriate nominal account - each of which is effectively Retained Earnings for that fund. I don't need to post any transactions to those accounts because it's all kept separately for me and fully visible. But because QBO only allows one Retained Earnings account, I need to know how this works here, or what the correct workaround is.

Hi Rose-A,

Many thanks for this. I can see from your images that they show on the current year P&L and BS detail as the individual transactions, but these are where they are entered in the relevant nominal accounts. That is what I understand happens during the year.

My question is: Is the location information preserved during the year-end process, when this is rolled up to Retained Earnings?

So, if you ran the year-end process, would the BS then show the three different amounts in the appropriate columns in the Retained Earnings line when running the BS by location, or would it roll them up into the "Not Specified" column? Could you add a screenshot of a BS with retained earnings from a previous year? I've tried using the sample data company, but the BS by location there shows everything as "Not Specified" even though I can see there is a location list with half a dozen locations.

Hi Phil_UK, the retained earnings is simply a figure generated at the end of the FY, it's calculated from the total in the income and expense accounts for the previous year(s), no transactional level detail (e.g. locations) is used or stored for this and the retained earnings account itself does not contain individual transactions. The only way to dig into the transactions that make up this figure is by running the P&L for all previous FY's, which can be customised as above. Not specified means that locations are enabled but a location has not been selected on the transaction(s). 

Hi GeorgiaC,

I've realised that QBO doesn't actually run a year-end process like Sage, which does an actual roll-up of the transactions and balances to the Capital & Reserves accounts. It seems it just calculates the figures from all of history each time you run a BS!

I used the sample company to create an invoice and payment with a location, within a prior FY, and then when I ran the BS by location I could see the retained earnings allocated to the location. It's unfortunate that the sample data has locations activated but none of the transactions that had been entered had used them!

Thanks Phil, you're right that is how QB calculates this - I can see how it would be useful to be able to see a transfer of individual balances and we'd welcome you to share feedback with our developers on this (via the Cog > Feedback button in your account) so that we could look to incorporate this process further in the future. :) 

Hi Phil

Did you ever get a solution from QB on Retained Earnings - I am trying to get as much Charity reporting from QB but the issue of dividing the Retained Earnings into the 3 categories persists.....

If the attached location fields are not 'rolled' over then the issue of distinguishing Unrestricted funds, Restricted funds & Designated funds is still an issue.

cheers, Ruth

Hello RuthJ63, it is still calculated the same way nothing has changed in QuickBooks, you can leave it as feedback within the main cog wheel.

Hi Ruth,

I've recently got to my first year-end, and so far, it isn't working quite how I hoped it would. For activities, where I've entered the location, it seems that the surplus/deficit carry over works. However, it doesn't seem to work where there are bank transfers. So we have a lot of income that comes through giving sites like JustGiving, and we also have commercial credit cards so that our staff don't have to pay for large costs out-of-pocket. Whenever we've transferred money from those giving sites to our bank account, or from the bank account to pay off the credit card, that's happened with a location designated "not specified", because you can't actually enter a location for a bank transfer. As a result, I've got a lot of "not specified" money in the bank accounts, when it should have stayed in the same location it was before I transferred it!

I think my solution to this is going to be to create a number of journals between that "not specified" location and the actual locations, until I have a zero balance for each account in "not specified" and the correct balances in each of the others (according to our audited accounts), and hope that solves the problem. But this feels like a workaround for a problem that didn't exist in Sage (where you could do bank transfers without any effect on the funds) rather than a system that correctly keeps track of the locations of funds.

I'm also going to have to do something similar to cover the funds that have been used to purchase fixed assets, where the value of the assets has increased (and is showing correctly under the "Fixed Assets Fund" location at the top of the Balance Sheet), but because the purchases have taken money out the bank account with a location of "Fixed Assets Fund", these have netted-off against the increase in the cost of the assets, and the bottom line shows the location balance as having the previous year's (correct) closing balance in "Opening Balance Equity", and just the depreciation charge as a deficit in the "Surplus/Deficit" line. This is because all asset purchases in QBO have to happen in one location, whereas in Sage, you could create a journal to purchase the asset in the Fixed Asset Fund with money from any other fund, using Sage's charity support for funds.

I'll try to remember to come back and report on my level of success with this once I've done all the journals!

Phil.