6. Adjusting retained earnings for owner/partner distributions

Retained earnings are the cumulative amount of your income and expenses for the prior period(s). This amount will be posted to the retained earnings account at the end of your fiscal/calendar year. QuickBooks will automatically make this entry for you. Depending on the type of organization (corporation, partnership, LLC, sole proprietorship, or non-profit), you may need to move this balance to other equity accounts.

To distribute profits to the owners, you will need to create a journal entry to an equity account entitled owner’s draw or owner distributions and offset it with retained earnings. Be sure to consult with your CPA or tax preparer if you are not familiar with this process.

To summarize what we have covered so far: many of the steps in the closing process are designed for you to review the transactions that have been recorded throughout the fiscal year, as well as make adjustments as needed for...