My Townhome Association is trying to show additional revenue for the budget by taking Retained Earnings. We don't have stockholders. This is not income, as it was income in the past. So, can they do this?
You can use Retained Earnings to hire new employees, buy inventory, etc. Can you use it to reduce expenses?
The net effect of trying to do this is the same on Retained Earnings.
Is there a journal entry for this?
Without fully understanding the question, this just sounds like something your association should avoid. You can't use the historical earnings of a business to reduce current period expenses.
Thanks Ken.
What they are trying to do is to use a portion of Retained Earnings to either add to income on the budget or to reduce expenses so that the loss is less for Budget purposes. There is no financial transaction nor any impact on the
It just shows on the budget less of a loss.
Does that help?
I don't understand why you would want to show less of a loss on a budget which is presumably forward looking - or a combination of what happened and will happen for the balance of a given period.
What is this budget going to be used for? If you were investing in a company and they massaged the numbers like this how would you view them?
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this is the budget to show the community our spending. Bottom line, it is just to show that the loss is not as significant but it will show up on the F/S. Thanks for your contribution. Greatly appreciate it.
Do they mean taking from reserves?
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No, it is not from reserves.
Short answer: no. You cannot recycle retained earnings into revenue. There is no journal entry you can make to do that.
What specific problem are they trying to solve? Without understanding that, this question is impossible to address.
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Just trying to show a smaller loss but you can't!!!! The board is a bunch of non-accountants. Thanks for your input. Greatly appreciate it.
Ken and Robert are exactly correct. As a rule of thumb, you do not post an entry directly to retained earnings. The budgeted loss will result in a reduction of retained earnings after the general ledger is closed but the annual income statement must show current results.
Ken stated this best. My only comment is that no entries should hit impact retained earnings except income earned. There are exceptions, but this is not one of them.
change the budget's figures.
