Retained Earnings account journal examples

USA Discussion in 'General Accountancy Discussion' started by Tom Haws, Sep 12, 2017.

  1. Tom Haws

    Tom Haws

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    I am trying to understand how any money would ever get entered into the Retained Earnings account.
    Starting with the following, which I am assuming is correct, I understand the Retained Earnings account is an Equity account.

    Left (Debit) | Right (Credit)
    Asset, Expense, Loss | Liability, Revenue, Gain, Equity

    What is an example of a journal entry that would include an entry in the Retained Earnings account? Is this something that happens only at an end of period?


    Is all this answered if I study Closing or some topic like that?

    Tom
     
    Tom Haws, Sep 12, 2017
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  2. Tom Haws

    Tom Haws

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    I am going to venture a guess at an answer of my own question. Please let me know how close I am:

    At the close of cycle, you zero out the Expense and Revenue (to be simple; all the "temporary" accounts, to be accurate).

    Example 1: You Credit an Expense account to bring it to zero and Debit the Retained earnings account accordingly.
    Example 2: You Debit a Revenue account to bring it to zero and Credit the Retained earnings account accordingly.

    Tom
     
    Tom Haws, Sep 12, 2017
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  3. Tom Haws

    kirby VIP Member

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    You've got the idea - based on what you wrote above.
    Let's flesh it out a little. Assume your fiscal year starts 1/1/17. So during 2017 you post transactions to the accounts, including the revenue and expense accounts. So you can make financial statements that show you the earnings for 2017. Now 1/1/18 comes along and you need to keep track of the 2018 earnings. So you have to "close out 2017" by moving the 2017 revenue and expense transactions to the Equity account.
    Fortunately, any decent software GL program does this for you "behind the scenes."
     
    kirby, Sep 12, 2017
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