Retained earnings might seem like a mysterious number on your balance sheet, but it plays a critical role in tracking your business’s financial history.
Whether you’re a business owner or a bookkeeper, understanding retained earnings helps you interpret your financial reports correctly and avoid making unnecessary adjustments in QuickBooks Online.
In this guide, we’ll explain retained earnings, where to find them in QuickBooks Online, and why you don’t need to manually update them.
What Are Retained Earnings?
Retained earnings represent a business’s cumulative net income (or net loss) from the time it started tracking financials in QuickBooks Online, minus any distributions to owners or shareholders.
Key Points About Retained Earnings:
- It’s automatically calculated in QuickBooks—no manual entry needed.
- It carries over net income from previous years.
- You can find it on the balance sheet in the equity section.
Example: If your business has been profitable for the past five years, your retained earnings should be positive. If the business has had more losses than profits, retained earnings could be negative.
Where to Find Retained Earnings in QuickBooks Online
You can view retained earnings on your balance sheet.
To get there, click Reports in the left-side menu. You’ll find the Balance Sheet under Favorites.
Scroll down to the Equity section—you’ll see Retained Earnings.
💡 Tip: If you started using QuickBooks after your business was already operating, retained earnings only reflect the income QuickBooks has recorded. Not your company’s full financial history.
How QuickBooks Automatically Updates Retained Earnings
One of the most important things to understand is that you don’t need to adjust retained earnings manually.
QuickBooks Online automatically transfers net income from the previous year into the retained earnings account when the new year starts.
How It Works Behind the Scenes:
Net income from the Profit & Loss report → Moves to retained earnings on January 1st each year.
Example:
- In 2023, your Profit & Loss report shows a net income of $10,000.
- On January 1, 2024, QuickBooks automatically adds that $10,000 to retained earnings.
- The retained earnings balance updates without you needing to do anything.
You won’t see individual transactions in retained earnings, only the cumulative total.
Can You Adjust Retained Earnings in QuickBooks?
Technically, you can make journal entries to retained earnings, but it’s not recommended unless absolutely necessary.
Why You Should Avoid Adjusting Retained Earnings Manually:
- It disrupts historical financial data.
- It can create discrepancies between reports.
- Tax professionals typically prefer unadjusted retained earnings.
If you do need to adjust it (for example, for a CPA adjustment), document why you made the change and consult an accountant.
Common Questions About Retained Earnings in QuickBooks
1. Why Can’t I View Register on Retained Earnings in QuickBooks?
Unlike bank accounts or expense accounts, retained earnings doesn’t have a register you can open. It’s a system-generated number that compiles past years’ net income, so QuickBooks doesn’t let you modify it like a standard account.
2. What Happens If Retained Earnings is Negative?
A negative retained earnings balance means the business has had more cumulative losses than profits. This isn’t necessarily a problem, but it could be a red flag if:
- The business struggles with profitability over several years.
- Owners have taken out more distributions than the company’s net income can support.
💡 Tip: If your retained earnings are negative, review past income statements to see where losses occurred and whether adjustments need to be made.
3. Can I Run a Report to See Retained Earnings Activity?
Since QuickBooks automatically calculates retained earnings, it doesn’t show individual transactions like a checking account. However, you can check its calculation by:
- Running a Profit & Loss report for all past years.
- Add up all net income amounts from previous years.
- Compare that total to the retained earnings number on the balance sheet.
If the numbers match, everything is working correctly!
Final Thoughts on Retained Earnings in QuickBooks
Retained earnings is one of the most important accounts on your balance sheet, summarizing your business’s financial success (or struggles) over time.
The best part? QuickBooks Online calculates it for you, so you don’t need to worry about updating it manually.
Key Takeaways:
- Retained earnings is the total net income from all previous years minus distributions.
- QuickBooks automatically updates retained earnings at the start of each year.
- You can find retained earnings on the balance sheet in the equity section.
- Negative retained earnings indicate cumulative losses over time.
- You shouldn’t adjust retained earnings manually unless directed by an accountant.
Need help understanding your QuickBooks reports? Book a one-on-one QuickBooks training session today!
Check out the video below if you’d like to see how retained earnings work in QuickBooks Online:
