Nonprofits and "retained earnings"


P

Paul Danaher

I've read the manuals and help screens and checked various articles on QB's
treatment of "retained earnings" for nonprofits, but at the end of the day I
still have a dumb question. I'm looking at "total liabilities and equity"
and under "current liabilities" I see a credit line which has been drawn
down. Further down there's a substantial negative entry for "retained
earnings", reduced by "net income".
Now, my understanding of this substantial negative figure is that it
represents cumulated net losses for preceding years. These would explain the
substantial outstanding revolving loan. Is this interpretation accurate? And
how on earth do I explain to my financially even-more-unversed colleagues
that the "total equity" doesn't really reduce "total liabilities" at all?
 
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A

Allan Martin

Paul Danaher said:
I've read the manuals and help screens and checked various articles on
QB's treatment of "retained earnings" for nonprofits, but at the end of
the day I still have a dumb question. I'm looking at "total liabilities
and equity" and under "current liabilities" I see a credit line which has
been drawn down. Further down there's a substantial negative entry for
"retained earnings", reduced by "net income".
Now, my understanding of this substantial negative figure is that it
represents cumulated net losses for preceding years. These would explain
the substantial outstanding revolving loan. Is this interpretation
accurate? And how on earth do I explain to my financially
even-more-unversed colleagues that the "total equity" doesn't really
reduce "total liabilities" at all?

Your post makes absolutley no sense.
 
P

Paul Danaher

Allan said:
Your post makes absolutley no sense.
Are you familiar with the issue of QB's treatment of "retained earnings" in
nonprofits?
 
A

Allan Martin

Paul Danaher said:
Are you familiar with the issue of QB's treatment of "retained earnings"
in nonprofits?
What issue is that?
 
P

Paul Danaher

Allan said:
Your post makes absolutley no sense.
Actually, it all falls into place if I simply look at the negative "retained
earnings" as negative net worth.
 
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D

David Smith

Paul Danaher said:
I've read the manuals and help screens and checked various articles on
QB's treatment of "retained earnings" for nonprofits, but at the end of
the day I still have a dumb question. I'm looking at "total liabilities
and equity" and under "current liabilities" I see a credit line which has
been drawn down. Further down there's a substantial negative entry for
"retained earnings", reduced by "net income".
Now, my understanding of this substantial negative figure is that it
represents cumulated net losses for preceding years. These would explain
the substantial outstanding revolving loan. Is this interpretation
accurate?
Yes

And
how on earth do I explain to my financially even-more-unversed colleagues
that the "total equity" doesn't really reduce "total liabilities" at all?

The accounting equation: Assets=Liabilities+Equity should do it.

or Assets-Liabilities = Equity
 
A

Allan Martin

Paul Danaher said:
Then my question isn't directed at you.

Every question on this newgroup is directed to me. You post is still jibber
wackey.
 
A

Allan Martin

David Smith said:
The accounting equation: Assets=Liabilities+Equity should do it.

or Assets-Liabilities = Equity

True but this does not address "the issue of QB's treatment of "retained
earnings" in nonprofits?".
 
D

David Smith

Allan Martin said:
earnings" in nonprofits?".
I think that involves something simple, like changing the name of that
account to something more appropriate.
 
P

Paul Danaher

Allan said:
True but this does not address "the issue of QB's treatment of
"retained earnings" in nonprofits?".
"Retained earnings" don't mean anything in a nonprofit, but that's the name
of the account you're stuck with, and that's what appears in the balance
sheet printout. Perhaps the best answer is to export to Excel and rename the
entry "cumulated net surplus/deficit". (Another suggestion made by various
people is to call the entry "Net assets", but that looks weird under
"Equity", and doesn't help when the figure's negative anyway.) There are
some other tricky aspects to this in QB versions before 2005 Nonprofit, as
you can't access the account directly, and retrospective adjustments to
other entries by a nonprofit bookkeeper can really confuse things.
 
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D

David Smith

Paul Danaher said:
"Retained earnings" don't mean anything in a nonprofit, but that's the
name of the account you're stuck with, and that's what appears in the
balance sheet printout.
This account can be renamed to anything you want.

Perhaps the best answer is to export to Excel and rename the entry
"cumulated net surplus/deficit". (Another suggestion made by various people
is to call the entry "Net assets", but that looks weird under "Equity", and
doesn't help when the figure's negative anyway.) There are some other
tricky aspects to this in QB versions before 2005 Nonprofit, as you can't
access the account directly,
You can't access it as a register, but you can post to it and view activity
in the balance sheet report. If you are using classes to track funds then
fund accounts can be set up to move their balances from retained earnings to
the fund accounts (long term liabilities) so retained earnings need never
have a balance.
 
G

Greg

I've read the manuals and help screens and checked various articles on QB's
treatment of "retained earnings" for nonprofits, but at the end of the day I
still have a dumb question. I'm looking at "total liabilities and equity"
and under "current liabilities" I see a credit line which has been drawn
down. Further down there's a substantial negative entry for "retained
earnings", reduced by "net income".
Now, my understanding of this substantial negative figure is that it
represents cumulated net losses for preceding years. These would explain the
substantial outstanding revolving loan. Is this interpretation accurate? And
how on earth do I explain to my financially even-more-unversed colleagues
that the "total equity" doesn't really reduce "total liabilities" at all?
It sounds like you are losing your arse, quickly put everything in the
wifes name grab the cash and bugger off.

Greg
 
P

Paul Danaher

David said:
This account can be renamed to anything you want.
Oh. The bookkeeper said we couldn't do this in QB 03.
You can't access it as a register, but you can post to it and view
activity in the balance sheet report. If you are using classes to
track funds then fund accounts can be set up to move their balances
from retained earnings to the fund accounts (long term liabilities)
so retained earnings need never have a balance.
This is a trifle complicated, since the nonprofit is an annual arts
festival, so a lot of the usual fund accounts don't apply. The deficit from
the first couple of years is being carried forward as a revolving loan
(credit line), which appears as a current liability.
 
H

HeyBub

Paul said:
And how on earth do I explain to my
financially even-more-unversed colleagues that the "total equity"
doesn't really reduce "total liabilities" at all?
Begin by telling them that balance sheets don't represent reality - they are
just a relative measure.

For example, the Railway Express Agency started out with the Pony Express in
1836 and finally filed for bankruptcy in 1975. It never made a profit (on
paper). Do we really believe it lost money every year for 139 years?

If it helps, you can add a bogus account that has obviously no relation to
reality and move the numbers into that account. Some suggestions: "Good
will," "Reserve for bad debt," "Accumulated depreciation," or other
confusing cupboards used to make things come out even.
 
D

David Smith

Paul Danaher said:
Oh. The bookkeeper said we couldn't do this in QB 03.
Lists/Chart of Accounts/Right click on Retained Earning/Select Edit/ change
the name to what you want.
 
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P

Paul Danaher

David said:
Lists/Chart of Accounts/Right click on Retained Earning/Select Edit/
change the name to what you want.
The usual sequence - okay. She said the program requires that name (like the
"Unposted items" account).
 
D

David Smith

Paul Danaher said:
The usual sequence - okay. She said the program requires that name (like
the "Unposted items" account).
If the program lets you change the name then changing it certainly will not
affect how the account operates. You can change every aspect of this account
except the TYPE. How can there be "unposted items" in Quickbooks? Maybe she
means "unallocated items" when classes are used.
 
P

Paul Danaher

David said:
If the program lets you change the name then changing it certainly
will not affect how the account operates. You can change every aspect
of this account except the TYPE. How can there be "unposted items" in
Quickbooks? Maybe she means "unallocated items" when classes are used.
Stupid slip of the fingers - I meant "Undeposited items".
 
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D

David Smith

Paul Danaher said:
Stupid slip of the fingers - I meant "Undeposited items".
Same goes for that account too. Although QB creates it you can treat it as
described above.
 

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