Year End Adjusting Entries
As part of the End of Year process for a Partnership, all Income, Expense, and Retained accounts zero out. For a Corporation, all Income and Expense accounts zero out. PCLaw® automatically creates an End of Year adjusting entry to post the difference of the cleared accounts to Equity.
The adjusting entries only appear on the End of Year Adjusting Entries report that PCLaw generates after you close the year. The adjusting entries do not appear on any of the G/L Statements. The Income, Expense, and Retained accounts still show a balance on the General Ledger when you run it for the last day of the fiscal year, but the cleared accounts show a zero balance when you run the General Ledger for the first day of the new fiscal year.
Because the cleared accounts have a zero balance on the first day of the fiscal year, they do not appear on the G/L statements unless you enable the Print Zero Balance Accounts option on the Other tab of the Statements window.
The Year to Date column on the Income Statement calculates from the first day of the fiscal year. The Current Period and Year to Date values match for the first month of the new fiscal year. The End of Year adjusting entries do not affect the Asset and Liability accounts that appear on the Balance Sheet, but the End of Year adjusting entries do affect the Partner's Equity accounts based on the amount of their Retained accounts. For a Partnership, PCLaw transfers the balance of the Retained Earnings accounts to lawyer's or firm equity as of the first day of the new fiscal year. For a Corporation, the Retained Earnings balance carries forward. PCLaw transfers the balance of Income for Allocation to firm Equity for firms that do not have profit sharing partners. The following formula shows the calculation that PCLaw uses to determine the Equity after you close the year:
New Equity Balance = Old Equity Balance + Retained Earnings