Shareholder Distribution entry in Quickbooks. I have money in Retained Earnings and Shareholder Distribution that was withdrawn during the year.

[shergill-ca]

2018 was my first year using quickbooks. I have the S Corp. I took out 50% in payroll and 50% as a shareholder distribution paid through bank transfer and a net profit in 2018. Net profit went to retained earning and reflects as a retained earning in 2019. However, shareholder distribution from last year is still showing up in the balance sheet of 2019. How would I zero out last year's shareholder distribution in the quick books? 

[qbteachmt · Accepted solution]

Also, you need better guidance, because this is not the IRS guideline: "I took out 50% in payroll and 50% as a shareholder distribution"

It is supposed to be Reasonable (market rate) Wage for the services performed.

[PhoebeRoberts]

Debit Retained Earnings, Credit Distributions.

[shergill-ca]

Thanks for your response. I am confused. Why I debit Retained Earnings? Can you please elaborate?

[abctax55]

Because the "retained" earnings is what funded the cash to do the distributions.

[shergill-ca]

Thanks for the response. First year, I didn't have the retained earnings. I transferred distribution directly to my bank account on a quarterly basis. During year end, quickbooks, did the entry of a net profit to retained earnings. The net profit came out was after the shareholder distribution. Technically, retained earnings account was created at the year end. The net profit of the 2018 came out after the shareholder distribution. If I debit retained earnings then would it reduce the retained earnings? I think, it will also double count the shareholder distribution. first I quarterly reduced the bank and now reducing the retained earnings.

[Accountant-Man]

When you reduced the bank(credit, paying the money to the shsteholder), what was the debit side of the entry? Did you write it as a check in the bank register, therefore the Acoount on the next line must have been...Retained Earnings, or AAA?

[qbteachmt]

In QB, whether you used Banking menu > Write Check, Banking menu > Transfer, or enter into the register view (creating a CHK), the "expense" detail is the Equity account for Shareholder Distributions. That's why it is not seen on the P&L, is not an expense, and does not affect profit. It is part of Cash Flow. I teach this as the difference between Expense and Expenditure. Taking a distribution is not part of the business activities; nothing was purchased or paid off with that money. It's just gone 🙂

[qbteachmt]

Let me try to help:

"First year, I didn't have the retained earnings."

You had Equity. RE is simply a clarity or slice-and-dice of one specific type of Equity. You run the P&L and the Bal Sheet on comparable dates, and the Net Income from the bottom of the P&L is your Equity, seen as Retained Earnings on the first date of the next fiscal year.

Please see my attached image.

"I transferred distribution directly to my bank account on a quarterly basis."

Banking menu > Write Check, and post as distribution. You removed Equity, so that runs negative.

"During year end, quickbooks, did the entry of a net profit to retained earnings. The net profit came out was after the shareholder distribution."

No, that's Wrong. You are not an Expense and your distribution is taking from Net Profit, whether available from prior years or the current year. Profit is what made money available to you.

You might need to fix your entries.

"Technically, retained earnings account was created at the year end."

The value is the carry over that isn't already taken by a shareholder. You would have already paid taxes on all of it, as a pass-through entity. That's why it is called Retained.

"The net profit of the 2018 came out after the shareholder distribution."

No, that's Wrong.

"If I debit retained earnings then would it reduce the retained earnings?"

Your total Equity is not going to change. You Debit RE and Credit Shareholder Distribution for Jan 1 to Refill Shareholder Distribution to be $0 for the new fiscal year.

"I think, it will also double count the shareholder distribution. first I quarterly reduced the bank and now reducing the retained earnings."

You took money, so Bank goes down and Equity goes down. You rebalance Equity for Jan 1. Nothing Changes.

You might need to fix your initial entries for those transfers.