The equity section of the Zoho Books Balance Sheet typically contains three categories. Capital Accounts record funds that owners have invested in the business, whether as share capital in a company or proprietor’s capital in a sole-proprietorship. Retained Earnings holds cumulative net profit from all prior financial years that has not been distributed as dividends or drawings. Current Year Earnings shows the net profit or loss for the period currently open in Zoho Books.
Equity is the balancing figure in the accounting equation: Assets = Liabilities + Equity. Every transaction in Zoho Books must keep this equation in balance. If your Balance Sheet shows Assets not equal to Liabilities plus Equity, there is likely a misclassified account or an opening balance error that needs investigation.
At the start of a new financial year in Zoho Books, you run the closing entry that transfers the current-year net profit into Retained Earnings, resetting income and expense accounts to zero for the new period.
When an owner withdraws money from the business, you post the transaction to a Drawings or Dividends Paid account under Equity. This reduces the equity balance without affecting income or expenses, correctly reflecting the reduction in the owner’s stake rather than treating it as a business expense.
Equity in Zoho Books represents the owner’s residual interest in the business after all liabilities are subtracted from total assets. It includes paid-in capital, retained earnings, and current-year profit or loss.
Zoho Books calculates owner’s equity on the Balance Sheet as total assets minus total liabilities, including capital accounts, retained earnings brought forward, and the net profit or loss for the current period.
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