Throughout the year, your income and expense accounts accumulate balances as you raise invoices and record expenses. At the end of the fiscal year, Zoho Books computes the net profit (income minus expenses) and automatically transfers it to Retained Earnings when the new year begins. This closes out the income and expense accounts, leaving them at zero for the new year while adding the year’s profit to the equity base.
If the business had a net loss for the year, retained earnings decreases by the loss amount, potentially turning negative if losses accumulate over multiple years.
On the Balance Sheet, retained earnings appears as a single line item under Equity, showing the cumulative amount. For a growing business with consistent profits, this number increases year on year. For a business that distributes profits as dividends, the distributions are recorded as a deduction in the equity section, keeping retained earnings at a level reflecting only the profit actually kept in the business.
Zoho Books distinguishes between “Current Year Earnings” (this year’s net profit so far) and “Retained Earnings” (all prior years’ cumulative profit). During the year, both lines appear separately on the Balance Sheet. At year end, the current year earnings roll into retained earnings. This makes it easy to see how much of the equity base was built before the current year and how much is being added this year.
Retained earnings in Zoho Books is the cumulative net profit earned by your business since inception, minus any dividends or drawings paid to owners. It appears in the Equity section of the Balance Sheet and grows each year by the current-year net profit.
At the start of each new fiscal year in Zoho Books, the system automatically carries forward the prior year’s net profit into the Retained Earnings account, resetting the income and expense accounts to zero for the new period.
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