Hello! I have inherited accounting responsibilities and am trying to educate myself but haven't been able to find a clear answer to my question simply by Googling.
I ran our general ledger and statement of financial position reports. Each of these reports show the same balances for my accounts, including the opening balance equity. The net revenue matches my statement of activity. However, I do not understand how the retained earnings, total equity, and total liabilities & equity are being calculated on the Financial Position report. These numbers seem very high but I don't know where they're coming from so I don't know how to interpret them.
Any guidance would be appreciated!
Welcome to the Community space.
I've got your back. I'll provide you with some insights to help you obtain your queries about the statement of Financial Position and General Ledger.
The balance sheet is a document that gives a summary of a company's financial status, whereas the ledger is a detailed record of all financial transactions. Knowing the difference between the two is crucial for maintaining precise financial records and preparing accurate financial statements.
Your company's Retained Earnings account displays the total income and expenses from all previous fiscal years. When a new fiscal year begins, QuickBooks Online automatically adds the net income from the previous fiscal year to your Balance Sheet as Retained Earnings. However, you can't view details by simply selecting Retained Earnings from the Balance Sheet. The Retained Earnings account is a summary of all previous fiscal years' net profit or loss. QuickBooks Online automatically transfers funds from your net income or loss into the account without recording any visible transactions. Therefore, to see what makes up your Retained Earnings, you need to run your previous year's Profit and Loss statement.
To determine your company's value, you need to subtract your liabilities from your assets. Calculating owner's equity is a crucial accounting equation that helps you assess your overall financial situation and determine what share of the business you own. The accounting formula used to find owner's equity is provided below:
Equity = Assets - Liabilities
Your company’s assets minus any liabilities are equivalent to the total equity of your company, also known as net worth. Follow these simple steps to help you calculate your owner’s equity:
I'll also be adding articles which you can use as your references for your future work:
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