Closed FY, Net Income moved to Members Equity, rather than Retained Earnings--why?

In case this is relevant, I should add that my business is a single-member LLC and I have my QB company profile linked to Income Tax Form 1040 (Sole Proprietor).

Hi there, DavidK5.

When closing a book in QuickBooks Desktop, it creates a year-end adjustment that is based on your fiscal year start month. The program adjusts your Income and Expense accounts to zero them out and rolls up to your net profit or loss as your Retained Earnings. For additional information about how closing books works in QBDT, you can refer to this article: Close your books in QuickBooks Desktop.

It should add the net income from the previous fiscal year to your Balance Sheet as Retained Earnings. Since the FY2020 net income wasn't added to the Retained Earnings, I recommend running the Verify/Rebuild tool. This helps identify the most commonly known data issues within the file and resolves it. The Verify Data utility identifies any potential data damage issues that might've caused the accounts to show the same amount on the report. On the other hand, the Rebuild Data utility repairs damaged data in your company file. Before we begin with the troubleshooting, let's secure a backup of your company file. 

Here’s how to verify:

1. Go to the File menu.
2. Select Utilities.
3. Click Verify Data then select OK to close all windows.

To rebuild:

1. Go to the File menu.
2. Select Utilities.
3. QuickBooks will ask to make a backup before rebuilding your company file, select OK.
4. Once the rebuild is done, click OK.

For more details in verifying and rebuilding your QBDT, you can check out this article for reference: Verify and rebuild data in QuickBooks Desktop.

Please refer to the articles below to see different information on how accounts in the Chart of accounts categorize your transactions on everything from sales forms to reports to tax forms. Then, to see the list of the important year-end tasks to guide you through.

• Learn about the chart of accounts in QuickBooks.
• QuickBooks year end guide.

Let me know if there’s anything else that I can help with the account by leaving a comment below. Take care and have a wonderful day!

ChristieAnn, thank you for your reply. I ran the Verify Data utility as you suggested and it returned "QuickBooks detected no problems with your data." So, do you have any other suggestions for me? Again, my FY2020 Net Income is currently automatically being credited to Members Equity on my FY2021 Balance Sheet, rather than being credited to my Retained Earnings account. As a workaround, I created a manual Journal Entry as of 1/1/2021 (the beginning of my FY2021) to credit Retained Earnings and debit Members Equity (both by the amount of my FY2020 Net Income). This is a relatively easy and simple fix, but I still would like to understand why the QB automatic closing entry is not working the way it should.

Thanks for getting back to us, DavidK5.

Yes, creating journal entries can work when moving balances from one account to another. You are also correct that QuickBooks should affect the Retained Earnings when you close your books instead of the Members Equity. 

Since we have confirmed through the Verify and Rebuild process that this is not a data issue, I can only think of the other possible reason. It could be that the Retained Earnings account was renamed to Members Equity, while you have created a new Retained Earnings account. 

If that is not the case, I'd recommend contacting our Technical Support Team. They can pull up your account and further investigate the issue. You can reach them through this link

Keep us posted so we can get to the bottom of this and correct your data. Have a great day!

James, just to clarify--I did use the Verify utility, but not the Rebuild utility since there were no data errors detected. I also can confirm that I did not rename the Retained Earnings account to Members Equity. Finally, it's not clear to me how to contact the QB Technical Support Team through this thread to pursue this further--can you advise? Thanks. -David

Hello @DavidK5, here is how you can reach out to the Customer Support Team.

If you have any other questions feel free to reach back out here in the Community so we can continue to help you!

sberti, it appears that I would need to pay to enlist the Customer Support Team, which I don't want to do. I can get by with my annual journal entry workaround. -David

I have the same problem.  The client was set up as a 1040 when we started it.  Tried changing the name of members' equity after changing it to an S-Corp in Company Information, tried re-build, verify, and nothing works.

Hi there, @cisojoki.

I can see that you've already performed the troubleshooting steps mentioned by my colleague above to ensure that the Net Income will go to the Retained Earnings account.

I'd recommend creating a Journal Entry to correct it and ask assistance from your accountant to make sure that your books are accurate before closing the 2020 Fiscal Year.

Also, contacting our Customer Care Team will be helpful so that they can check further what has caused this issue and make an active investigation to the Product Engineers if needed.

You can also consider checking this article to know more about Journal posting: Create a journal entry in QuickBooks Desktop for Windows or Mac.

Please don't hesitate to let me know in the comment section if you have other questions. I'm here to back you up.

I am the CPA.  It is really annoying, because we renamed the members equity account, and QuickBooks renames it back.  We tried deleting the members equity account and it comes back.  We tried updating to QuickBooks 2021 and no change.   We are going to do a journal entry and call, but this is not a good time of year for any of this to be happening.

I am having the same problem with QB Desktop Pro 2020.  Net income is moving to Members Equity on January 1, there is no retained earnings account showing, single member LLC.  It does not zero out after 12/31 like it should.  Did you ever find the fix for this?  Thanks

Hello there, @Linda1643. I've come to make sure that you'll get the right support in fixing your retained earnings issue. 

Have you tried performing the steps provided by my colleagues above? If so and you still experience the same thing, I highly recommend reaching out to our technical support team. They use specific tools to safely access your account to check the setup and verify the root cause of the issue. They can also guide you on what actions you can take.  

To learn more information about closing your books in QuickBooks Desktop (QBDT), feel free to open this link: Close your books in QuickBooks Desktop.

There are a number of help articles and even video tutorials available on our QuickBooks Help page that can help you with your QBDT tasks. Simply browse from there and click the categories you need. 

In case you have an additional concern about your retained earnings account, you can always post it here in the Community. I'm just a post away to help. Have a good one.