Hi Mark,

When I started trading as a ltd co I had a small credit balance of £14 with one supplier.
In order to show this we set retained earnings opening balance to £14 and created a dummy credit note from that supplier to show a supplier balance in credit.

Why is the retained earnings balance still showing £14 as it has been transferred onto the supplier balance (and subsequently allocated against a purchase invoice)

Thanks
Simon

Hi Simon,

The Retained Earnings account balance represents the profit you have made in previous financial years but haven't paid out as dividends. Allocating the supplier credit note to a purchase invoice has no effect on the profit from previous years, so it will not change the balance of that account.

Since this is your company's first year, I recommend you set the opening balance of the Retained Earnings account to zero. Then go through all the balance sheet accounts (eg. Cheque Account, Mastercard, etc) and set the opening balance as at the start of the company's financial year. If this results in a non-zero balance of the Balancing Account then adjust the opening balance of the Directors Loan Account until the balance of the Balancing Account is zero.

Regards,

I can't set the opening balance of a supplier directly hence the use of the dummy credit note, thinking about it I guess (from your subsequent remarks) the directors loan account is a more approriate source of funds for the credit note as the supplier balance was from my sole tradership ie me?

Still not convinced I completely understand the equity accounts but am getting there!

Thanks for your help.

Simon

Hi Simon,

Yes, it would make sense to use 'Directors Loan Account' in the credit note window.

Regards,