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Negative Retained Earnings Balance

Hello all,

I have an S-Corp and have ended a year with a negative bank account balance (due to a combination of reasons). When I start a new year, my software (MYOB) gives me a negative retained earnings balance. I need to know how to return this to zero.

In a normal year with a positive retained earnings balance, I write myself a check from this account to zero it. With a negative balance, am I supposed to write a check to the company, or can I use subsequent AR to zero it, or use another approach?

Thanks in advance,

Guitarmike63

Reply to
GuitarMike63
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"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.

Reply to
Paul Thomas, CPA

Thanks for your respone, Paul.

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

GuitarMike63

Reply to
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.

Reply to
Paul Thomas, CPA

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 If you have withdrawn cash as dividends, as in prior years, it was appropriate to reduce retained earnings as you did.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

Reply to
Arnold

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

GuitarMike63

Reply to
GuitarMike63

Thanks Arnold,

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

GuitarMike63

Reply to
GuitarMike63

Mike,

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

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Scroll down to Special Features and select "Crash Course in Accounting"

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

Good luck,

Arnold

Reply to
Arnold

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