End of Year Closeout (Sole Proprietorship)

1

Please be patient as I am new to this portion of accounting.

I would like to close out my 2016 files, especially now that I have reconciled all accounts and my taxes are submitted.

How do I zero out my income/expense accounts for the new year? Also, I have an Owner Equity and Retained Earnings accounts (is that correct??) and I’m not sure how these come into play.

Please explain at an elementary level for me.

Thank you VERY much in advance.
Jenny

2

On the Summary tab - go to Set Period and change the dates, this will “close out” your 2016 and zero out P&L accounts.

That is correct, Owners Equity records any funds that you put into the business and Retained Earnings accumulates the profits made - 2016 + 2017

1 Like
3

Read these two Guides:

https://www.manager.io/guides/best-practices/accounting-periods
https://www.manager.io/guides/best-practices/simple-equity-accounting-for-sole-traders-proprietors

If you still have specific questions, please ask.

1 Like
4

To expand a little bit, your use of both Retained earnings and Owner’s equity is perfectly acceptable. But Retained earnings is normally an account used for corporations. Profits are parked there until distributed via dividends. Partnerships can use it until profits are divided between partners and moved to capital accounts. Retained earnings is always up to date, whereas dividend and capital transactions usually only happen on quarterly or annual bases.

But for a sole proprietor, you already own all of Retained earnings, so an Owner’s equity account is redundant. The second link I sent you explains how to use just one. If you go that route now, you will have to transfer everything out. But to actually delete the unnecessary Owner’s equity account, you will actually have to recharacterize every transaction involving it to the renamed Retained earnings. To avoid confusion, do the reallocations first. Then rename the account. Otherwise you won’t be able to tell them apart.

1 Like
5

I apologize for not replying sooner. Life happened and I was not able to get back to my books until today. I appreciate your response and will dive deep into the guides you presented and information posted to make my decision, and if needed, adjust accordingly.

As usual, your experience and knowledge is much appreciated and I thank you for your help.
Jenny

1 Like