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Year-End Closing Preparation (Dividend, Retained Earnings & Carry Forward)

In this video, we will understand how to prepare year-end closing entries in BusinessBook Plus accounting software step by step. This tutorial explains Dividend distribution, Retained Earnings calculation, and the Carry Forward process of permanent accounts, and how year-end adjustments impact the Balance Sheet and Owner’s Equity.

Current Net Profit: ₹36,621

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Step 1 – Understand Net Profit Position

First, check the Profit & Loss Account.

Net Profit for Electrical Wings is ₹36,621.

This profit must now be transferred appropriately before starting the new financial year.

A company has three options:

• Distribute full profit as Dividend
• Retain full profit in the business
• Split profit between Dividend and Retained Earnings

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Step 2 – Understand Dividend Distribution

Dividend is the portion of profit paid to shareholders.

Electrical Wings ownership structure:

Bob – 60%
John – 40%

If full profit is distributed:

Bob receives ₹21,972.60
John receives ₹14,648.40

This creates a liability called Dividends Payable until payment is made.

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Step 3 – Understand Retained Earnings

Retained Earnings represent profit kept inside the business for future growth.

Formula:

Retained Earnings = Net Profit – Dividend Distributed

If no dividend is paid, the full ₹36,621 will be transferred to Retained Earnings under Owner’s Equity in the Balance Sheet.

If 50% is distributed and 50% retained:

Dividend = ₹18,310.50
Retained Earnings = ₹18,310.50

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Step 4 – Carry Forward of Permanent Accounts

At year-end, temporary accounts are closed.

Temporary Accounts include:

• Income
• Expenses
• Profit & Loss

Their final balance is transferred to Retained Earnings.

Permanent Accounts are carried forward.

Permanent Accounts include:

Assets – Cash, Bank, Accounts Receivable
Liabilities – Notes Payable, Tax Payable
Owner’s Equity – Paid-up Capital, Retained Earnings

Their closing balances become the opening balances of the next financial year.

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Step 5 – What Happens During Closing

At year-end:

✔ All Income & Expense accounts become zero
✔ Net Profit is transferred to Retained Earnings
✔ Dividend decision is recorded
✔ Permanent accounts continue to next year
✔ Balance Sheet remains balanced

This completes the financial year properly before account rollover.

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What You Learned in This Transaction

✔ How year-end closing preparation works
✔ Difference between Dividend and Retained Earnings
✔ How profit is distributed among shareholders
✔ Temporary vs Permanent accounts
✔ Carry Forward process in accounting
✔ How year-end impacts Balance Sheet

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