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In Reportance we work with standalone trial balances for each period. This means it is up to the user to ensure that retained earnings balances between periods.


The Reportance Master Chart of Accounts for the Equity section is as follows:



For fully correct reporting between consecutive periods, users should ensure that the total of all Retained Earnings headers in one year, equals the total of the Opening Balance header in the subsequent year. This means that accounts in the following System Headers need to be journalled, either in the client accounting system or in Reportance:

Current Year Earnings

Distributions

Transfer to or from Reserves

Adjustments to Retained Earnings


Note, most accounting systems will automatically journal Current Year Earnings to the relevant Opening Balance account.


Failure to do so first of all indicates that the trial balances do not correctly flow to each other, and thus the financial statements are fundamentally flawed. Secondly, the Cashflow statements will not reconciling to the trial balance (A warning will appear on the relevant report explaining that this is the case).


Equity Chart for different Entity Types


Many entities do not have a 'Retained Earnings' account per se, for example a Sole Trader or Partnership. In these entities, the profits are in fact distributed immediately and recognised in general equity. Our recommended approach for setting up accounts for these two types of entities is as follows:


Sole Trader


We would expect to see an account structure similar to the following:


Capital

    :: Opening Proprietor's Funds

    :: Drawings

    :: Contributions

    :: Profit

Retained Earnings

   Opening Balance

   Current Year Earnings

       :: Current Year Earnings

   Distributions

       :: Profit Distribution


At the end of each period, a journal is made (in either the client file or Reportance) to journal the retained earnings into the Proprietor's funds as follows:

                                   Debit    Credit

DR Profit Distribution      $X

CR Profit                                   $X


This will result in Retained Earnings totalling $0. At the reporting stage, you can then 'roll-up' the Retained Earnings header, which, given it has a $0 balance, will not appear on the report.


For simplicity, the Capital accounts can be consolidated into a single account.


Partnership


We would expect to see an account structure similar to the following:


Capital

   :: Partner 1

       :: Opening Proprietor's Funds

       :: Drawings

       :: Contributions

       :: Profit - Partner 1

   :: Partner 2

       :: Opening Proprietor's Funds

       :: Drawings

       :: Contributions

       :: Profit - Partner 1    

Retained Earnings

   Opening Balance

   Current Year Earnings

       :: Current Year Earnings

   Distributions

       :: Profit Distribution


At the end of each period, a journal is made (in either the client file or Reportance) to journal the retained earnings into the Proprietor's funds as follows:

                                   Debit    Credit

DR Profit Distribution      $X

CR Profit - Partner 1                    $X

CR Profit - Partner 2                    $X


This will result in Retained Earnings totalling $0. At the reporting stage, you can then 'roll-up' the Retained Earnings header, which, given it has a $0 balance, will not appear on the report.


For simplicity, the Capital accounts can be consolidated into a single account, or a single account for each partner


Trust


We would expect to see an account structure similar to the following:


Non-Current Liabilities

   UPE

       :: Beneficiary 1

           :: Opening UPE

           :: Physical Distribution

           :: Funds Loaned from Beneficiary

           :: Profit Distribution

       :: Beneficiaries 2

           :: Opening UPE

           :: Physical Distribution

           :: Funds Loaned from Beneficiary

           :: Profit Distribution

Retained Earnings

   Opening Balance

   Current Year Earnings

       :: Current Year Earnings

   Distributions

       :: Profit Distribution


You can also simulate a distribution statement by using the following layout in retained earnings:


Retained Earnings

   Opening Balance

   Current Year Earnings

       :: Current Year Earnings

   Distributions

       :: Profit Distribution - Beneficiary 1

       :: Profit Distribution - Beneficiary 2


You can then collapse current year earnings and refer to them in a note.


The journal to recognise the profit distribution in this case would be:

                                                                  Debit    Credit

DR Profit Distribution - Beneficiary 1                $X

DR Profit Distribution - Beneficiary 2                $X

CR Profit Distribution (Beneficiary 1 UPE)                    $X

CR Profit Distribution (Beneficiary 1 UPE)                    $X