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Milan Vaishnav
Milan Vaishnav, Financial Advisor
Category: Finance
Satisfied Customers: 972
Experience:  Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting
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how do I close out the retained earnings and asset accounts

Customer Question

how do I close out the retained earnings and asset accounts for the final year of a S corporation? How is the retained earnings balance picked up on the K-1 if so?
Submitted: 7 years ago.
Category: Finance
Expert:  Milan Vaishnav replied 7 years ago.

Dear Friend,


Retained earnings and Asset Accounts are NOT Closed but reported on Balance Sheet with their balances.


I hope this helps...


Customer: replied 7 years ago.
Thanks for you answer. I may not have been clear in the original post. The situation involves general journal entries required for the final (short year) of an S corporation. Balance sheet is as follows:

Cash 1000

(net of depreciation) 2000

Retained Earnings 3000

I need to shut the corporation down, distribute the cash and equipment to the sole shareholder and make the proper treatments on the form 1120S.

Expert:  Milan Vaishnav replied 7 years ago.

Dear Friend,


There is still some ambiguity. However, I shall try and clear them.


Firstly, the cash. The Cash account shall be closed as :


Retained Earnings A/c DR $ 1000

TO Cash A/c $ 1000


Then comes the equipment. The equipment needs to be sold and once you get the cash, it should be similarly be transferred to the Retained earnings account.


Then comes the depreciation. This is accumulated depreciation. i.e. something accounted for but not spent. This also needs to be closed and transferred to Retained Earnings.


Retained Earnings A/c DR

To Depreciation A/c

This will Close the Depreciation A/c


Now, if there is a single shareholder, this will represent the capital and the retained earnings would be equal to the capital as of end of that aaccouting period.


This canbe closed by making a payout to the single shareholder as :


Bank / Cash A/c DR

To Shareholder Account.


This will close all account and wind up the corporation.


I hope the above helps...