Retained Earnings

[Absolut]

Can someone tell me what this account is used for? I have a friend that has a S corp and their accountant has money there and he doesn't know why. Can you give me some examples of what would be put there? Thank you.

[skhyatt]

quick example is, at the end of a fiscal year, all income and expense accounts are closed out to retained earnings. the profit or loss that is retained in the company.

[Matt Sova]

Retained Earnings

Absolut:

Not to sound disrespectful, but this is very basic. I have read your other posts regarding finding info on corps and classes regarding corporate accounting and taxes. I think this is something that should be done prior to handling corporations. Maybe there is someone in your area that is well versed in corporate accounting and taxes that could help you along as well.

That said, Retained Earnings are just that Earnings (or losses) that are retained in the corp. Basic Balance Sheet info Assets = Liabilities + Equity. Equity consists of Stock, Paid in Capital, Retained Earnings and Current Earnings (which are another component of RE).

At the end of the corporate fiscal year, if anyone kept books by hand, there would be a closing entry. All Revenue accounts would be debited and all expense accounts would be credited. Obviously Revenues and Expenses do not equal, the net amount (which is the fiscal year's net income) is a credit to the Retained Earnings account (or debit in the case of a loss for the year). Now your income statement accounts are all at 0 for the start of the new fiscal year. The balance sheet accounts always carry forward.

Matt

[Absolut]

Thanks Matt for you advise. You are right I shouldn't have taken them on until I knew more. I'm looking into taking a class with a local firm.

[Matt Sova]

Help

Is there someone near you that you could get to help you with this in the mean time? I think you would learn a lot about corporate accounting and taxes if someone was there "showing you the ropes". Maybe you could even split the fee with them. I worked for 6 years prior to going on my own and, thankfully, our clients ran the gamut of corp, personal, trusts, estates, 5500's, etc. I learned more from doing the work and having someone there to guide me then I ever learned from a text book.