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What happens to net profit from previous year in the current year?

posted Jan 14, 2009, 9:40 PM by Unknown user   [ updated Aug 25, 2010, 1:19 AM by janet@wavelet.biz ]
Scenario:
ABC co. has just started using EMP on the 1st of January 2009. What is the accounting treatment for the net profit from year 2008?
 
 
Solution:
The net profit from year 2008 should be carried forward to the opening retained earnings for the year 2009.
Therefore, to perform this transaction, the user can pass a Journal Transaction on the 31st of December 2008 (set the date if necessary).
  • Accounting > Journal and Ledger > Add JTxn
  • Select a PC Center and enter the date 31-12-2008.
  • Select a 'Reference Doc' to show what document the journal transaction will be associated with and enter a remark in the box on the right.
  • Enter a description of the journal entry in the 'Description' box.
  • Click 'Set Details'.
  • The double entries should be entered as follows if is PROFIT :
  Debit Credit
Profit or Loss 5,000  
Retained Earnings   5,000
 
  • The double entries should be entered as follows if is LOSS :
  Debit Credit
Profit or Loss
 5,000
Retained Earnings  5,000
 

  • Subsequently, the net profit figure will automatically be transfered to the opening balance of Retained Earnings for the year 2009. The reasoning behind this statement is the closing balance for Retained Earnings 2008 must be carried forward to opening balance for Retained Earnings 2009.
  • The table below shows an example of what is done for accounting purposes.

 

Statement of Retained Earnings





 RM
Year 2008 Balance b/d 3,000

Add: Net profit 5,000

Less: Dividends (1000)

Balance c/f 7,000



Year 2009 Balance b/d 7,000
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