Negative Retained Earnings Balance

"GuitarMike63" wrote

You don't. Retained Earnings shouldn't be changed.

Just let the business profits (you do expect to have those, right?) bring it back up.

Thanks for your respone, Paul.

I have plenty of subsequent receivables, however without a specific journal entry, the negative retained earnings balance persists.

GuitarMike63

"GuitarMike63" wrote

As it should. Retained Earnings is a cumulative of prior years (or prior period) profits and losses, less the distributions if any.

R/E should remain static for the year if there are no distribution of profits.

There's nothing wrong with a negative R/E.

Guitar,

When you have a negative retained earnings, it means you have operated at a cumulative loss. If you have withdrawn cash as dividends, as in prior years, it was appropriate to reduce retained earnings as you did. The only way to increase retained earnings is to make a profit, thus the label "earnings." Paying money into the company is not "earnings." If you paid money in, that amount would go in under "paid in surplus" or some similarly named account.

Good luck,

Arnold

Thanks, Paul. I will leave it as is, it just seems a little strange to carry a negative balance.

GuitarMike63

Thanks Arnold,

I think I now understand the concept, thanks to you and Paul

GuitarMike63

Mike,

If you want a quickie overview of accounting, there is a 24 minute presentation you can download at:

It covers the processes and terminology of accounting is a quick, easy to understand presentation.

Good luck,

Arnold