Recording Retained Earnings
in the Journal

by Azie
(Malaysia)

accounting studentQ: How do you record retained earnings in the journal?

A: Earnings means profits and retained earnings is all the net profits one accumulated. Also known as accumulated profit.

Anyway, I think what you are referring to is the transfer of net profit at the end of the year to retained earnings. If so, these are the journal entries...

If you made a profit for the year, the profit and loss account would have a credit balance. So you:

Dr Profit and loss account
Cr Retained earnings

If, however, the business made a loss for the year, the profit and loss account would have a debit balance. So you do the opposite:

Dr Retained earnings
Cr Profit and loss account

Notice how the retained earnings gets the balance on the same side as what was for the profit and loss account? If there was a credit balance in profit and loss (profit), then there ends up being a credit balance in retained earnings.

Hope that makes sense! Good luck!

Best,
Michael Celender

Comments for Recording Retained Earnings
in the Journal

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Net Profit Journal Entry
by: Anonymous

Thanks for the info. It was a bit confusing for me though. Why will we debit profit which was credit in profit and loss account? What's the logic behind it. Can you please explain? Thanks.

A profit in the Profit and Loss account has a credit balance. If we want to take it out of the Profit and Loss account we have to debit the Profit and Loss account. That cancels it out of there.

Every debit has to have a corresponding credit entry. The credit goes to the Retained Earnings account.

The new credit in the Retained Earnings account is the same as the old credit in the Profit and Loss account.

In other words, we're just transferring the profit to the new account.

Hope that makes sense!

Best,
Michael Celender
Founder of Accounting Basics for Students
Retained Earnings in Journal
by: William Jack

The process of writing retained earnings in the journal is that you may know how much you have gained the profit and how much you gained the loss.
Thank you
by: Editor

Thank you very much
RECORDING P/L AND RETAINED EANINGS
by: Anonymous

TOTALLY AGREE WITH YOUR RESPONSE.

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