Tax Summary Report - Retained Earnings

[FourCandles]

I’ve been using QF since 2014. At the end of each company year I close off the year using the “Year End Process” feature. This generates journal entries that includes (3101) “Retained Profit & Undistributed Reserves”. This all makes sense to me as far as my basic grasp of these matters allow.

What I’m having a problem with is the amount of Total Distributable Profit that’s shown when I check the report for “Tax Summary”. The Total Distributable Profit has an entry for “Retained Earnings” that shows the sum of the end of year journal entries for (3101) “Retained Profit & Undistributed Reserves”. This is obviously not the amount that’s available as it should be carried over from one year to the next and not be an amount that can be added up individually for each year.

Here’s an example.

Year 1
End of year gives a retained profit of £10,000 which is shown as a credit in the Year End Closing Journal against 3103.

Year 2
End of year gives a retained profit of £5,000 which is shown as a credit in the Year End Closing Journal against 3103.

Year 3
End of year gives a retained profit of £10,000 which is shown as a credit in the Year End Closing Journal against 3103.

Looking at the report during Year 4 it shows retained earnings of £25,000, which isn’t the case since this amount is not in the bank.

There is a tooltip agains the “Retained Earnings” entry in the report that states … “Retained earnings from previous accounting periods (nominal ledger 3101). To obtain an accurate balance here please ensure any previous accounting periods have been correctly closed with income, expenditure and previously issued dividends journalled to retained earnings”. I thought the Year End Process took care of this?

Can someone explain to me what I need to do in order to sort this out?

Thanks, Keith

[George_H]

Hi Keith,
You need to look at your full balance sheet, your “Total Assets less Current Liabilities” will equal your “Total Capital and Reserves”
So if you have been accounting correctly your balance sheet will show you where the £25,000 retained profit went.

The bank account is only one of the balance sheet items which accounts for your retained profits, so as it’s not in the bank you probably drew out the profits or used them on other assets
Examples
If you are a sole trader the 25k was either drawn out which should be shown in the proprietors drawings account and/or used for asset purchases
If a Ltd co then drawn out as dividends or used on assets

[FourCandles]

Thanks for the reply and apologies for the delay in getting back to you.

That makes sense. In looking into this I discovered that I needed to journal out my Corporation Tax to get it off the balance sheet. This I’ve done. Now I’ve also discovered that I’ve been doing the payroll journalling wrong (as in not doing it!) as I’ve been using the simple tagging which isn’t correct for my circumstances from about 2017 onwards. So I’m going to go back over the previous years and correct this, let my accountant know what I’ve done and then check if there’s any other issues I’ve yet to discover.