Rolling net income into owner's equity at end of accounting period

HAAcademicSolutions · ‎August 01, 2022

Greetings!

On the balance sheet, there is the net income line at the bottom before the totals for liabilities and equity accounts is posted. I run a small tutoring sole proprietorship where most revenue is converted into owner draws. My accounting periods are monthly.

I originally invested a certain amount and haven't invested since. The net income increases at the end of each accounting period, and the owner's equity keeps decreasing due to my owner's draws debiting that account. Now, I am at the point that if I do the next owner's draw that I have planned, owner's equity account will be negative!

What I want to do is roll net income each accounting period (the net profit from each month's P&L minus the withdrawals for the month) into the owner's equity, as is done in a Statement of Owner's Equity. I can't find that report in the reports section (using Simple Start), and it also appears as though this report will not actually roll the net income over.

I'm somewhat stumped about how to do this, and I don't want to see that net income line at the bottom of the balance sheet if I can roll it into owner's equity at each month end.

Carneil_C · ‎August 01, 2022

I appreciate you for sharing the details of your concern, @HAAcademicSolutions.

I want to ensure that your concerns about net income in the Balance Sheet report and finding the Owner's Equity get sorted out. Let me assist you with your queries one at a time.

Beforehand, retained earnings account displays the total of your company's expenses and revenues over the prior fiscal years. When new fiscal year starts, QuickBooks Online automatically adds the past fiscal year's net income to your Balance Sheet as Net Profits.

Also, we're unable to remove the net income line at the bottom of the balance sheet report because this indicates a business's profitability. It shows how much profit is left from revenue after accounting for expenses and liabilities.

Furthermore, I've added these articles here that you can review to learn more details about retained earnings and clear up some things about the Balance Sheet report:

Moreover, you can also see this article for guidance in personalizing reports in QBO: Customize reports in QuickBooks Online.

I’m always ready to assist you if you have any other questions or concerns about managing your accounts in QBO. Tag me in your reply, and I’ll sprint back into action. Have a good one, and keep safe.

Rainflurry · ‎August 02, 2022

@HAAcademicSolutions

QB automatically closes net income into retained earnings on Dec. 31 every year. You cannot close it monthly.

HAAcademicSolutions · ‎August 02, 2022

I figured, well I think I should have set this up differently from the beginning, but I got interesting advice on here long ago, which told me to debit owner's equity for all drawings.

I currently have no drawing account set up as a normal debit account, but something tells me I should have set that account up and debited that each time I did a draw instead of owner's equity. Would you recommend that I create this account and recategorize all my previous owner's draws?

I looked for a good matching detail type for an account like this in QBO, but I cannot find one :(

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Rolling net income into owner's equity at end of accounting period