• 3-8000 Retained Earnings (previous years profit retained)
• 3-9000 Current Year Earnings (current year Profit)

Profit made during the current financial year is posted to 3-9000. When you close your financial year, all undistributed values left in this account are automatically transferred to 3-8000 Retained Earnings.

For a partnership, you should create extra equity accounts for the partners appropriation, such as:

• Beginning Balance
• Drawings
• Distribution, etc.

Prior to closing your financial year, you will need to make general journal entries to disctibute profits (or losses) from the Retained Earnings account (3-8000) to the Partner Distribution Accounts. The amount in the journal entry will be the balance of the Current Year Earnings account (if you are distributing 100% of the profit).

Example: At the end of the year your income is $10,000 and your expenses are $6,000.

Note that without distributing the profits, after closing the financial year the $4,000 is rolled into Retained Earnings for the New Year and the Current Year Earnings is reduced to zero.

To distribute the profits to the partners, create a general journal entry prior to closing the financial year as follows:

3-8000 Retained Earnings $4000 (debit)

3-xxxx Partner A Distribution $2000 (credit)

3-xxxx Partner B Distribution $2000 (credit)

This will result in the Retained Earnings account being temporarily reduced by $4000. You can still print a Profit and Loss Statement giving a true result.

Then when you close the financial year, all your comparative figures will be correct and the balance in Current Year's Earnings will be added into Retained Earnings, setting it back to what it should be.