New to the system, everything seems to make sense except that this year’s earnings are added to Retained Earnings, am I missing something?
They have to otherwise your balance sheet would not balance.
End-of-year 2019 shows two balance sheet entries: Current year earnings and Retained earnings. Todays balance sheet show Current Year Earnings unchanged, and this year’s earnings added to Retained Earnings - hence it balances. I was expecting the two 2019 balance sheet entries to consolidate into Retained Earnings, and Current Year earnings to reflect the P&L. Am I expecting too much?
This “two accounts” concept where one account will have current year earnings and another one will have retained earnings doesn’t belong to Balance Sheet.
The reason is so balance sheet can be consistent with another financial statement called
Statement of Changes in Equity and this statement shows current year earnings within
Retained earnings section.
Thus on balance sheet, current year earnings should be also included in
Retained earnings balance sheet account for consistency.
In my system the Equity section of the balance sheet does contain the two entries, Current Year Earnings, which I had assumed to be a running consolidation of the P&L for the current year, and a Retained earnings entry that consists of the starting position at the beginning of the financial year that reflects historic balances. Your response suggests that I need to manually add the two start-of-year totals, and separate this year’s earnings. Not a problem, as the balance sheet will always balance whichever way, but it was a surprise nonetheless. Previous systems I have used automatically perform this function when you define the date of the end of the financial period.
Let’s take step back. Why is it important to see on your balance sheet current year earnings and historical retained earnings separately?
Statement of Changes in Equity report gives you this information and more. Why repeat the same information on balance sheet?
I’ve created the Statement of Changes in Equity. Under Current Year Earnings, it shows the end-of-year position from last financial year, and nothing in the Current Year Earnings. Under Retained Earnings, it shows the end-of-year position from last financial year, and adds “Profit (loss) for the period”. Which all balances out, except that I would have expected the “Profit (loss) for the period” to appear as Current Year Earnings… which is surely what they are?
Manager doesn’t have any built-in account called
Current Year Earnings. Did you create it manually? Perhaps create some test business and demonstrate with screenshots.
If that’s the way it works, then that’s the way it works. But you can understand my puzzlement over the automatic addition of this year’s earnings into the retained earnings, while there is a perfectly adequate entry called Current Year Earnings.
Fair enough. I’ll simply consolidate the two myself as the start-of year position, and eliminate the Current Year Earnings as an entry. All will then be well… and many thanks for walking me through it.
Manager calculates net business earnings and adds it to that account. You can not change the account it adds net business earing to but you can rename in anything you like such as “Current year earnings” if that is what you wanted. It would also be possible to use a journal entry to move prior year net earnings to a different account if that is what you wanted to do.
As Lubos explained, that is not how Manager is designed to be used. It is a perpetual accounting system. The financial year information is displayed via the various reports and setting the display period for the summary page. See the guides
Thanks, I’m happy with the way it works now I understand it. In my previous system the two elements, current year earnings and retained earnings, were kept separate until year-end, when they were merged for the new year into retained earnings. I had set up a current year earnings in my system without thinking it through, then wondered why it didn’t work automatically. My bad. Fortunately it was solved very quickly through the Forum. Most impressed.
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