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Year-End Equity and Retained Earnings Adjustments

This article will provide clarity on Traction's system- calculated Year-End Equity roll-forward.

At the start of each new year, Traction displays an adjustment that rolls the prior year’s Net Income and Dividends/Drawings into equity or retained earnings.

You can view this adjustment by running a Balance Sheet as of the first day of the new year (typically January 1) and drilling into either:

  • Retained Earnings (for corporations), or
  • Equity accounts (for non-corporate entities)

This is a system-calculated display used for reporting purposes. No journal entry is created in Traction.

The way the displayed adjustment is calculated depends on the entity type.

Jump to a Section: 

Corporations

Non-Corporate Entities (Sole Proprietorships, Partnerships, LLCs) 

Corporations

For corporations, Traction displays a Year End adjustment in the Retained Earnings account calculated as:

  • PLUS prior-year Net Income
  • MINUS prior-year Dividends

Dividends include amounts posted to the Dividends account as well as family living entries.

Example

A Balance Sheet as of 12/31/25 shows:

  • Retained Earnings: $100,000
  • Net Income (2025): $50,000
  • Dividends (2025): $25,000

A Balance Sheet as of 1/1/26 will display:

  • Retained Earnings: $125,000

Calculation shown:

  • Beginning Retained Earnings: $100,000
  • PLUS Net Income: $50,000
  • MINUS Dividends: $25,000

 

Non-Corporate Entities (Sole Proprietorships, Partnerships, LLCs)

 

For non-corporate entities, Traction displays a Year End adjustment in each owner’s Equity account calculated as:

  • PLUS (prior-year Net Income × ownership percentage)
  • MINUS prior-year Drawings for that owner

Drawings include amounts posted to the Drawing account as well as family living entries.

Example

Entity has two owners:

  • Owner A: 60% ownership
  • Owner B: 40% ownership

A Balance Sheet as of 12/31/25 shows:

  • Equity – Owner A: $60,000
  • Equity – Owner B: $40,000
  • Net Income (2025): $50,000
  • Drawings – Owner A: $6,000
  • Drawings – Owner B: $4,000

A Balance Sheet as of 1/1/26 will display:

Owner A

  • Equity: $84,000
    • Beginning Equity: $60,000
    • PLUS Net Income: $30,000 ($50,000 × 60%)
    • MINUS Drawings: $6,000

Owner B

  • Equity: $56,000
    • Beginning Equity: $40,000
    • PLUS Net Income: $20,000 ($50,000 × 40%)
    • MINUS Drawings: $4,000

These adjustments are calculated dynamically for reporting and do not represent posted journal entries.