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Proper use & journal entry for accounting for retained earnings?

lisa couture's Profile

My Townhome Association is trying to show additional revenue for the budget by taking Retained Earnings. We don't have stockholders. This is not income, as it was income in the past. So, can they do this?

You can use Retained Earnings to hire new employees, buy inventory, etc. Can you use it to reduce expenses?

The net effect of trying to do this is the same on Retained Earnings.

Is there a journal entry for this?


Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Without fully understanding the question, this just sounds like something your association should avoid. You can't use the historical earnings of a business to reduce current period expenses.

(IT Specialist) |

Thanks Ken.

What they are trying to do is to use a portion of Retained Earnings to either add to income on the budget or to reduce expenses so that the loss is less for Budget purposes. There is no financial transaction nor any impact on the tax return.

It just shows on the budget less of a loss.

Does that help?

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

I don't understand why you would want to show less of a loss on a budget which is presumably forward looking - or a combination of what happened and will happen for the balance of a given period.

What is this budget going to be used for? If you were investing in a company and they massaged the numbers like this how would you view them?

lisa couture
Title: IT Specialist
Company: EPA
(IT Specialist, EPA) |

this is the budget to show the community our spending. Bottom line, it is just to show that the loss is not as significant but it will show up on the F/S. Thanks for your contribution. Greatly appreciate it.

Mary Ellen Morris
Title: Consultant & Lecturer in Accounting
Company: Consulting and University of Massachuset..
(Consultant & Lecturer in Accounting, Consulting and University of Massachusetts) |

Do they mean taking from reserves?

(IT Specialist) |

No, it is not from reserves.

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

Short answer: no. You cannot recycle retained earnings into revenue. There is no journal entry you can make to do that.

What specific problem are they trying to solve? Without understanding that, this question is impossible to address.

(IT Specialist) |

Just trying to show a smaller loss but you can't!!!! The board is a bunch of non-accountants. Thanks for your input. Greatly appreciate it.

Ken Mason
Title: Controller
Company: Pascua Yaqui Tribe
LinkedIn Profile
(Controller, Pascua Yaqui Tribe) |

Ken and Robert are exactly correct. As a rule of thumb, you do not post an entry directly to retained earnings. The budgeted loss will result in a reduction of retained earnings after the general ledger is closed but the annual income statement must show current results.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Ken stated this best. My only comment is that no entries should hit impact retained earnings except income earned. There are exceptions, but this is not one of them.

Sami Abulehya
Title: Chief Accountant
Company: Laf
(Chief Accountant, Laf) |

change the budget's figures.

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