When running a business, you’ll come across many accounting terms that might seem overwhelming at first. One such term is retained earnings. So, what is retained earnings in QuickBooks? To answer this question, you need to understand the context of this term and its meaning in the accounting world.
This article will explain what retained earnings are and how they are used in your QuickBooks company file.
What is Retained Earnings in QuickBooks?
Retained earnings is money that a company keeps in its profits instead of paying it out as a dividend to shareholders. It is a key part of the balance sheet equation, as it sums up the entire equity of a company. In other words, retained earnings is the profit that a company keeps within the business.
Retained earnings are calculated by taking the company’s net income and subtracting the amount it has paid out to shareholders through dividends. For example, if a company made $100,000 in profit and decided to pay $50,000 as dividends, it would have $50,000 in retained earnings. The other part of the profit may also be put towards financing growth, repaying debt, or paying taxes.
Is Retained Earnings the Same as Earnings?
No. Retained earnings and earnings are two different things. Retained earnings is the amount of profit a company keeps within the business instead of paying it out to shareholders as a dividend. However, the amount of profit a business earns during a specific time period is also referred to as earnings.
There are some key differences between the two:
- Retained earnings is the total amount of profit a company has kept over time, while earnings are calculated over a specific period.
- Earnings are usually calculated as net income, which takes out things like taxes and interest on debt. Retained earnings, on the other hand, does not subtract out anything.
What Type of Account is Retained Earnings in QuickBooks
Retained earnings is a balance sheet account that falls under the Equity section and is denoted by the capital letter "E." It represents the amount of the company's retained earnings and is calculated by taking the company's net income, subtracting the amount it has paid out in dividends, and adding any capital increases via stock issuance.
It’s important to note that retained earnings (as well as other balance sheet accounts) can be found in the Assets, Liabilities, and Equity sections of the company file. This means you can view the retained earnings amount in QuickBooks by selecting the Equity section and then filtering the account list by typing “Retained Earnings” into the field.
What is Retained Earnings on a Balance Sheet QuickBooks?
The retained earnings account is listed on the balance sheet and represents the equity a company has earned through its operations. This means that the retained earnings account is calculated by taking the company’s net income, then subtracting the amount it has paid out in dividends and adding any capital increases via stock issuance.
Retained earnings are important because they represent how much profit a company has kept within the business and can be used to expand or repay debt. This means the amount of retained earnings can change over time as the company experiences growth or loss.
How Do I Get Rid of Retained Earnings in QuickBooks?
As the name suggests, retained earnings is money that’s retained within the business. While it may seem like a good idea to keep as much money within the company, it’s important to remember that retaining a large amount of profit is not always the best move.
For example, your company may not be in a position to expand or take on debt due to low retained earnings. Similarly, you might want to pay out dividends to investors who have been waiting for a long time. Whatever the reason, it is possible to get rid of retained earnings in QuickBooks. You can do so by issuing a dividend payment or transferring money to an asset account, like stock or accounts receivable.
Summary
Retained earnings are the amount of profit a company keeps within the business. While it’s important to understand what factors qualify as retained earnings, it’s also important to understand why they’re important. Retained earnings are important because they represent how much profit a company has kept within the business and can be used to expand or repay debt.
The key takeaway is that retained earnings are the profit a company has kept within the business, whereas earnings are calculated during a specific period. Retained earnings have nothing to do with earnings; they are only concerned with profit. These account for taxes, capital expenditures, dividends, and reserves.
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