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B
Bill2057
April 3, 2022
Question

Retained Earnings

  • April 3, 2022
  • 2 replies
  • 13 views

We are a 3 member LLC. We make member draws each month. There is no money left over at the end of the year, because we draw off the profits. The draws should offset the net income, but my balance sheet shows retained earnings. The draw entries are correct, everything else is correct. What is wrong with this?

2 replies

M
mv32
Level 8
April 3, 2022

I can see that you have already drawn off the profits to offset the net income, @Bill2057.

 

Allow me to share some insights into why retained earnings still show on your balance sheet.

 

There may be some accounts that display balances in the previous fiscal year. To fix this, I suggest consulting an accountant for further guidance. Your accountant can advise you on which account to affect to offset the remaining amounts in your net income. If you’re not affiliated with one, you can visit our ProAdvisor page and look for one from there.

 

The retained earnings account will show the total of your company's income and expenses from all previous years' accounts. When a new fiscal year starts, QuickBooks automatically adds the net income from the previous fiscal year to your Balance Sheet as Retained Earnings.

 

QBDT doesn't have an actual transaction for closing entries it automatically creates. The program computes the adjustments when you run a report (for example, QuickReport of Retained Earnings), but you can't "QuickZoom" on these transactions, unlike the manual adjustments you recorded.

 

You can check out this article for more details: How to view Retained Earnings account details.

 

If you have other concerns about recording transactions, please let me know. I'll be around to help. Have a nice day!

Rainflurry
Rainflurry
Level 11
April 3, 2022

@Bill2057 

 

Member draws are a reduction of equity on your balance sheet, they do not (and should not) post to your P&L and reduce net income.  If they did, your LLC would appear as though it never made a profit and obviously it does - that's how you have member draws available.  At year-end in QBD, your net income posts to retained earnings and your member draws should offset that.  Then, you can close the draw accounts to retained earnings and it should net to zero.  Is that not what you're seeing?   

B
Bill2057Author
April 3, 2022

Ok, I understand about the net income part. But at year end, it did not reduce retained earnings. I use the member draws to show pay, & any money contributed to the company as member equity. Maybe my EOY is not correct? 

Rainflurry
Rainflurry
Level 11
April 4, 2022

@Bill2057 

 

Correct, it doesn't reduce retained earnings automatically - you have to do that with a journal entry at year-end.  Throughout the year, as you take draws, they should be posted to the member's draw equity account.  The draw account will have a negative balance on your balance sheet.  It is good practice to use a new account each year - i.e. "2022 - Member's Draws".  Then at year-end, you will close out the member's draw equity account to retained earnings by creating a journal entry - debit retained earnings and credit the member's draw equity account to zero it out.  That will reduce retained earnings by the amount of member draws for the year.  If member draws equal net income, then your retained earnings balance will be unchanged for the year. 

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