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Retained earnings and the year-end equity balance
Retained earnings connects prior results to the equity section of the books. Review how the balance developed before moving money between equity accounts or assuming it represents available cash.
This guide describes common bookkeeping practice, not a legal or regulatory requirement.
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General information, not legal or tax advice.
Read equity alongside assets and liabilities
Publication 583 presents equity as part of the balance sheet at a particular date and describes net worth as assets less liabilities. Read retained earnings in that setting. Compare it with the other equity accounts and the prior approved reports instead of treating it as a separate bank balance.
Sources: IRS Pub 583
Understand the automatic QuickBooks roll-forward
Intuit explains that QuickBooks Online moves prior-year net income into retained earnings at the beginning of the new fiscal year without a visible transaction. Compare reporting periods before searching for a missing journal entry. The change may be the software’s year-end presentation rather than a manual posting.
Sources: Intuit QuickBooks support (round-1 fact); Intuit QuickBooks support (round-1 fact)
Investigate opening equity before reclassifying
Intuit’s Desktop guidance says remaining Opening Balance Equity amounts should be moved to appropriate equity accounts or retained earnings with an accountant’s help. Trace the source of each opening balance first. Moving an unexplained amount can conceal a setup problem without correcting the asset or liability behind it.
Reconcile distributions with your CPA
Maintain a practical roll-forward showing the opening equity balance, period results and approved owner transactions. IRS guidance distinguishes withdrawals for personal use from business payments. Give your CPA the withdrawal detail and prior statements when resolving equity questions, with any unexplained difference left visible until reviewed.
Sources: IRS Pub 583
Sources: read equity alongside assets and liabilities
Related records and decisions
Explain the equity roll-forward
Tidwell helps reconcile the books and organize supporting schedules for your business decisions. We work with your CPA on tax questions and the financial records they need.