Your retained earnings changed for a year you already closed

Here is the thing almost nobody explains before it bites: QuickBooks does not store retained earnings.

There is no posting to it at year end that fixes the number in place. QuickBooks recalculates it — from every transaction in every prior year — every single time you open a balance sheet. The account has no register of its own to inspect, which is why the balance can be different today from last month with nothing visible to explain it.

Which means one backdated bill, entered by anyone with access, quietly restates a figure you may already have given to a bank.

What actually moved it

1. A transaction dated inside a closed year was added, edited or deleted

The overwhelmingly common cause. Someone categorising old bank-feed items, or correcting something they spotted, touches a transaction dated in a year that was finished. Prior-year net income changes. Retained earnings, recomputed, changes with it.

Nothing appears in the retained earnings account, because nothing was posted to it. The change is entirely a consequence.

2. Somebody posted directly to retained earnings

A journal entry straight to the account. This one is visible if you look for it, and it is fixed differently from the first case — so check for it explicitly rather than assuming the backdated-transaction explanation.

3. The fiscal year setting doesn't match how the books are kept

Less common, but if the fiscal year start in QuickBooks doesn't match the year actually reported on, the rollover lands in the wrong place and the figure never agrees with your accountant's.

Finding it

Two comparisons and a filter:

1. Establish the size of the change. Compare the prior-year net income QuickBooks now computes against the net income you originally reported for that year. The difference is what you are looking for.

2. Find transactions entered after the year ended. Run a profit and loss for the closed year, then use the audit log to compare transaction date against entry date. Anything dated inside the closed year but entered or modified after it closed is a candidate. That comparison is the whole diagnostic, and it usually produces a very short list.

3. Check the retained earnings account itself for direct journal entries. If one is there, it is your answer and you can stop.

Deciding what to do — this is the part that isn't bookkeeping

Once you have found the transaction, you have a decision, and it isn't purely a technical one.

If the change is correct — a genuine expense that belonged in that year and was legitimately missing — then the prior year has been restated, properly. The bookkeeping is now more accurate than it was. But the figures you previously issued are no longer the figures in the file, and your CPA needs to know, because a return was prepared on the old ones.

If the change is wrong — a transaction misdated, a correction that should have been posted in the current year — reverse it and post it where it belongs.

If you cannot tell, that is the moment to stop and ask rather than to adjust. Forcing retained earnings back to the old number is the one option that is always wrong: it conceals the change and puts an offsetting error somewhere else on the balance sheet.

The control that prevents all of this

Set a closing date, with a password.

After each year is finalised, set the closing date to the last day of that year. It doesn't lock the period absolutely — it makes editing it a deliberate act, requiring someone to acknowledge a warning and enter a password, rather than something that happens by accident during a routine bank-feed session.

Most files we see have never had one set. It takes two minutes and it is the difference between "our prior year moved and we don't know why" and "someone chose to change it, and here is who and when."

Why this matters beyond tidiness

Retained earnings is the accumulated history of the business. When it moves without explanation:

• Prior-year comparatives stop agreeing with anything you issued before.
• A lender or investor looking at the same date twice sees two answers.
• Your CPA's workpapers no longer tie to the file they were built from, which turns next year's close into a reconciliation of the reconciliation.
• You lose the ability to close a year with confidence, because nothing is holding it closed.

When this stops being a DIY job

Handle it yourself when the audit log points at a single transaction, the reason it was entered is obvious, and the amount is immaterial.

Get help when:

• Multiple prior years have moved — that is a pattern, and it means no year in the file is currently trustworthy.
• The difference is material to a filed return.
• You find direct journal entries to retained earnings that nobody can account for.
• The file has no closing date and multiple users, so this will recur regardless of what you fix today.
• Retained earnings has never agreed with your accountant's figures, in which case the divergence has been accumulating and needs reconciling to a known-good year.

That work — reconciling the file back to a year everyone agrees on, correcting what moved, and putting controls in place so it stays put — is what a QuickBooks cleanup covers. Where the goal is specifically to hand your accountant a file whose prior years tie to their workpapers, it is usually scoped alongside monthly bookkeeping, because the control matters more than the correction: a year that is closed and stays closed is worth more than a year that is right today.

TechBrot does the operational bookkeeping and hands your CPA a file they can file from. We don't file returns — and where a restatement affects one, that is a conversation for them, which we'll flag rather than quietly work around.