Retained earnings for the year

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Posted on by oldman.logan

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Good day! I am a little out of my depth here since I'm not coming from an accounting background. We closed the year on the system recently for the year 2019 using retained earnings as the account to which the year end result will be posted.

Our finance noted that the closing balance of 2019 and the opening balance of 2020 do not match in the trial balances. As per my knowledge, the closing balance of 2019 and opening balance of 2020 should be the same with the closing transactions posted on 01-01-2020 giving the ending balance on 01-01-20 including the profit for 2019.

In this case, the system has made the total including the profit as opening balance of 2020. Is it how this should work? Are we missing something? Thanks in advance.

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Ludwig Reinhard Microsoft Employee on at

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Hello Vijay V.M.

Can you share a screenprint that illustrates that the closing and opening balances don't match.

In general, AX, summarizes all your P&L accounts, calculates the balance to get the profit/loss of the year and posts this on the account specified in the year end closing form to make your balance sheet balance on assets and liabilities.

It is therefore interesting to hear that things would not balance.

Would be great if you could get more information from your finance team and post some screenshots that illustrate the problem.

Many thanks and best regards,

Ludwig

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oldman.logan 565 on at

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Thanks Dr. Reinhard.

Please see below.

If you'd like to see anything else, please let me know.

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Ludwig Reinhard Microsoft Employee on at

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Hi Vijay V.M.

Many thanks for the update.

I have a couple of follow up questions:

1. Is this a customized report? If so, does it only show this closing/beginning balance discrepancy for the retained earnings account?

2. Can you share the postings / individual transactions that have been recorded on this account in the last period 2019 and the first period 2020?

Many thanks,

Ludwig

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oldman.logan 565 on at

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Thanks for your reply Dr. Ludwig.

1. No it is not a customized report. It is the system Trial balance.

2. Please see below the statements for the account in 2019 and 2020.

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Junaid Idrees on at

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Hi Vijay,

I think there is a little disconnect in understanding about how exactly retained earning works when we run year end closing. I believe your report is showing correct information but you are calculating numbers incorrectly.

Ludwig also explained to you the concept of retained earning calculaton. let me shed some light on that. Look Closing balance of 2019 (retained earnings) account will not match with 2020 (retained earnings) opening balance. In order to match the opening balance of retained earning in 2020, you have to sum up all the (Revenue and expenses) accounts closing balance of 2019 (let's say as of 31 Dec 2019).

For example: As per your screen print 2019 (retained earning) closing balance is 11,824 and in 2020 (retained earnings) opening balance is 49,756. That means 37,932 (Sum of all your revenue and expense closing balance 2019).

Just export the trial balance from (1 Dec 2019 to 31 Dec 2019) into an excel and just keep only Revenue and Expenses accounts and delete rest of other accounts. Sum the closing balance total (it should be 37,932) and minus from retained earning 2019 closing balance.

Please check that out and share the feedback.

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oldman.logan 565 on at

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Dear Junaid. Thanks for the reply. Yes, you are right. The opening of 2020 and closing of 2019 were never meant to match in the case of retained earnings. Its the profit / loss for the year 2019 posted on 01-01-2020. Actually as per calculation, the company incurred loss of 61,580, leaving a balance of 49,756 after being moved to the account. Thanks for the clarification and support.

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Ludwig Reinhard Microsoft Employee on at

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Good Morning Vijay V.M. and Junaid,

I kind of like to disagree a bit.

If your retained earnings account is a Balance Sheet account - which it should be - then the closing balance and the opening balance must match provided that the year end closing process has been run.

Is it possible that the closing process has not been run yet?

Best regards,

Ludwig

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oldman.logan 565 on at

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Good Morning. Thank you Dr. Reinhard for your reply.

The year is closed as of now and we compared the trial balances of both years, all balance sheet accounts' closing balances in 2019 match exactly with the opening balances of 2020, except for the retained earnings.

Yes, retained earnings is a liability and it is placed as a balance sheet account as you mentioned.

Also my question is, if the income or loss of the previous year is being posted to the account specified during closing, should the result be posted on 31-12-2019 or 01-01-2020? I checked the closing transactions and the posting to the account (after closing) was done on 01-01-2020. So the profit for 2019 is the opening balance of 2020. In that case, they cannot be the same right? Unless the result is posted on 31-12-2019, in that case the closing and opening balances will match.

I am talking of course from an IT perspective only. I am definitely out of my depth here. I would like to know more on how to verify or check this? Please advice.

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Ludwig Reinhard Microsoft Employee on at

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Hi,

The year end closing voucher is posted on 1 Jan of the following year on this account that you specify in the opening transactions form.

This account must be a balance sheet account.

Maybe instead of the trial balance you should better use a balance sheet report to see what is going on.

If you run your balance sheet as of 30 December let's say, then assets and liabilities won't match because the profit and loss for the current year is the element that makes assets and liabilities balance.

You should thus have a special element in your balance sheet report that takes care of it.

What might help is activating the parameter 'create closing transactions during transfer'.

What this parameter will do is clearing the profit & loss accounts as of 31 December so that your BS matches.

In other words, you get an extra posting made on 31 December and on 1st Jan.

Maybe let your accounting people 'play' around with this parameter setting in a demo/test environment to see if they can understand the transactions better with the parameter activated.

Best regards,

Ludwig

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