Managing equity accounts properly is critical for accurate financial reporting. One of the most common accounting tasks business owners struggle with is recording the journal entry for retained earnings and owner distributions correctly in QuickBooks.
If you're unsure how to close owner draws, adjust retained earnings, or complete your year-end equity entries, this complete guide will walk you through everything step-by-step.
📞 Need expert help with equity adjustments? Call 844-753-8012 for professional QuickBooks support.
Understanding Retained Earnings in QuickBooks Online
In QuickBooks Online, retained earnings represent the cumulative net income of your business that has not been distributed to owners or shareholders.
At the end of each fiscal year, QuickBooks automatically transfers net income to retained earnings. However, manual adjustments may be required when:
- Fixing prior-year errors
- Recording owner distributions
- Making CPA-directed corrections
- Closing equity accounts properly
This is where the retained earnings journal entry QuickBooks Online becomes important.
What Are Owner Distributions?
Owner distributions QuickBooks Online (also called owner draws) represent money taken out of the business by the owner for personal use.
Important distinctions:
- Owner Draw = Equity account (not expense)
- Reduces Owner’s Equity
- Does NOT affect Profit & Loss
- Closed to Retained Earnings at year-end
If you don’t properly close distributions, your equity reports will be inaccurate.
Why You Need a Journal Entry for Retained Earnings and Owner Distributions
At year-end, businesses must:
- Close income and expense accounts
- Move net income to retained earnings
- Close owner distribution accounts
- Ensure equity balances are correct
This process is known as the year-end equity close QuickBooks Online.
If distributions remain open, your balance sheet will not reflect accurate retained earnings.
Basic Structure of the Journal Entry
To complete the journal entry for retained earnings and owner distributions, the standard entry is:
Debit: Retained Earnings
Credit: Owner Distributions
OR
Debit: Owner Distributions
Credit: Retained Earnings
The direction depends on your existing account balances.
Many accountants follow this structure:
Debit retained earnings credit owner distributions
This closes the distribution account to zero and adjusts retained earnings accordingly.
Step-by-Step: How to Close Owner Distributions to Retained Earnings
If you're wondering how to close owner distributions to retained earnings, follow these steps inside QuickBooks Online:
Step 1: Review Owner Distribution Account
- Go to Reports
- Open Balance Sheet
- Locate Owner Draw or Distribution account
- Confirm the balance
Step 2: Create Journal Entry
- Click + New
- Select Journal Entry
- Choose the last day of your fiscal year
Step 3: Enter the Adjustment
- Debit Retained Earnings
- Credit Owner Distribution (for total annual draws)
Step 4: Save and Close
Your owner distribution account should now show zero balance.
If you're unsure about the amounts, call 844-753-8012 for guided assistance.
Journal Entry for Owner Draws Year End
A journal entry for owner draws year end ensures that equity accounts reflect the accurate position of the business.
Example:
Total Owner Draws for the Year: $25,000
Journal Entry:
Debit: Retained Earnings – $25,000
Credit: Owner Draw – $25,000
This reduces retained earnings by the amount withdrawn.
Retained Earnings Adjustment QuickBooks Online
Sometimes you may need a retained earnings adjustment QuickBooks Online outside of year-end closing.
Common scenarios include:
- Fixing bookkeeping errors
- Adjusting prior year financials
- CPA tax adjustments
- Reclassifying equity accounts
How to Adjust Retained Earnings:
- Create a Journal Entry
- Date it as of the prior year
- Adjust retained earnings
- Use proper offsetting account
Always consult your accountant before making prior-year changes.
C Corp Owner Distribution Journal Entry
The accounting treatment differs for corporations.
In a C corp owner distribution journal entry, distributions are recorded as dividends rather than draws.
Example for C Corp:
When declaring dividend:
- Debit Retained Earnings
- Credit Dividends Payable
When paying dividend:
- Debit Dividends Payable
- Credit Cash
C Corporations must follow corporate compliance rules. Incorrect entries can affect tax filings.
If you operate as a C Corp and need help, call 844-753-8012.
QuickBooks Online Equity Journal Entry Best Practices
When making a QuickBooks Online equity journal entry, keep these best practices in mind:
✔ Use last day of fiscal year
✔ Verify distribution totals first
✔ Consult CPA before prior-year adjustments
✔ Avoid editing automatically generated retained earnings
✔ Always attach notes explaining the entry
Equity mistakes can cause tax reporting errors.
Year-End Journal Entry Retained Earnings Process
QuickBooks automatically transfers net income to retained earnings at the start of the new fiscal year.
However, it does NOT automatically close owner draws.
That’s why manual closing entries are required.
The year-end journal entry retained earnings process includes:
- Confirm net income is accurate
- Review distribution account balance
- Make closing journal entry
- Re-run balance sheet
- Verify equity totals
Common Mistakes to Avoid
When recording the journal entry for retained earnings and owner distributions, avoid these mistakes:
❌ Recording draws as expenses
❌ Editing retained earnings directly
❌ Closing distributions mid-year
❌ Forgetting to match fiscal year date
❌ Not reconciling equity accounts
Incorrect entries can distort financial reports.
Example Scenario: Full Year-End Equity Close
Let’s walk through a complete year-end equity close QuickBooks Online example.
Business Summary:
Net Income: $80,000
Owner Distributions: $30,000
QuickBooks automatically moves $80,000 to retained earnings.
Now you close distributions:
Journal Entry:
Debit Retained Earnings – $30,000
Credit Owner Draw – $30,000
Final Retained Earnings Impact:
$80,000 – $30,000 = $50,000 increase
Owner draw account = $0
This ensures accurate equity reporting.
Multi-Owner Business Considerations
If your company has multiple partners:
- Each owner should have a separate equity account
- Separate distribution accounts should be maintained
- Close each owner’s draw individually
For partnerships, consult a tax professional before closing entries.
How Retained Earnings Appear in Reports
In QuickBooks Online:
- Retained earnings appear on the Balance Sheet
- Net income flows automatically
- Distribution accounts appear under Equity
After closing entries, only retained earnings should reflect cumulative profit.
Troubleshooting Equity Errors
If you notice:
- Retained earnings not matching prior year
- Negative equity unexpectedly
- Distribution account not zero
- Balance sheet not balancing
You may need to:
- Review prior-year entries
- Check deleted transactions
- Confirm accountant adjustments
📞 Call 844-753-8012 for professional troubleshooting.
Frequently Asked Questions
Does QuickBooks automatically close owner distributions?
No. You must manually close them with a journal entry.
Should I debit retained earnings credit owner distributions?
Yes, when closing draws at year-end.
Can I edit retained earnings directly?
No. Always use a journal entry.
What date should I use?
Use the last day of your fiscal year.
Is this different for corporations?
Yes. Corporations record dividends, not draws.
When to Seek Professional Help
Equity accounts affect:
- Tax filings
- Owner basis
- Financial statements
- Investor reporting
- Audit compliance
If you’re unsure about making a retained earnings journal entry QuickBooks Online, it’s best to consult a professional.
📞 Call 844-753-8012 for expert QuickBooks equity and journal entry assistance.
Final Thoughts
Recording the journal entry for retained earnings and owner distributions correctly ensures your financial statements remain accurate and compliant.
Whether you’re completing a year-end journal entry retained earnings, making a retained earnings adjustment QuickBooks Online, or closing owner draws, following proper accounting procedures is essential.
Equity accounts are foundational to your business’s financial health. Taking the time to close them properly prevents tax issues and reporting errors.
If you want accurate, CPA-level guidance without the stress, call 844-753-8012 today for reliable QuickBooks support.