Retained Earnings Account


Account > Retained Earnings - Previous year

I want to get a better understanding regarding this account.

Does this account accumulate over the business years or should it be cleared at year end?

Regarding Owner's Withdrawal Account - I clear this account at year end to Owner's Contribution Account, correct?

Thank you
Ann Marie

image of fancy scroll lines

Hi Ann Marie,

Your equity section of the balance sheet for a proprietorship should look something like this:

Owner's Equity or Owner's Capital (parent account)
Owner's Contributions (sub account)
Owner's Draws or Owner's Withdrawals (sub account)
Net Income (Loss) (parent account)

When you close your books, the two subaccounts and Net Income account are journaled to the parent account Owner's Capital on January 1 (in QuickBooks, not sure how Simply handles closing entries). This ensures you start your year with a zero balance in the "closed" or temporary accounts.

Retained Earnings is really an account for corporations and yes it does represent their accumulated earnings since business inception. In a sole proprietorship, the Retained Earnings account should be renamed to Owner's Capital.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

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Jan 16, 2011
Simply Accounting Equity Section
by: Ann Marie


Thank you for your quick response. I had to do some thinking and most likely still do!

In Simply Accounting, the balance sheet accounts for a propietorship are set up as follows:

Owner's Contribution
Owner's Withdrawls
Retained Earnings - previous year
Current Earnings

In this case, should I clear the retained earnings account to owner's contribution account? If so, at year end or beginning of new year? I have cleared the owner's withdrawl account to owner's contribution at year end, correct?

Ann Marie

Jan 16, 2011
Simply Accounting Closing Entries
by: Lake

Hello Ann Marie,

I cannot tell you how Simply works as I use QuickBooks. I did find this post in their community that may help you:

If you go back and re-read my answer carefully, you will find the answer to where I clear the owner's draw. Because you are using Simply, the answer may not be relevant.

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