Do We Have To Calculate The Retained Earning In Monthly Closing Accounts? How?


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Shezan Shaikh answered
Retained earnings are a special equity account that tracks the company's net worth accumulated over preceding previous years. With the help of accounting software, you can transfer your net profit to "retained earnings." In this scenario, there is not an actual form of transaction which happens. Net income (Income less expenses) from the previous years moves into the "retained earnings" account. To find how it is exactly calculated, you have to run a profit and loss report from the previous year.

The Retained Earnings statement includes the opening balance, previous period adjustments, and net income for the current period, dividends declared in the current period, and the ending balance. The Retained Earnings statement pulls the balance from the Retained account from the Trial Balance(this balance is the beginning balance of Retained Earning), adds the net income from the Income statement and subtracts Dividends from the Trial Balance to calculate the Retained Earnings account ending balance.

Retained Earnings is "closed" at the end of every financial year. To close on a monthly basis, you need to manually make the relevant journal entries, which is not the usual accounting practice. You can get the monthly net profit from the Profit & Loss Report.

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