The purpose of this article is to explain the logic and function of the Retained Earnings account in relation to closing activities and balance carry forward at the end of year cycle.
You may notice that for certain Balance Sheet General Ledger accounts the opening balance of a fiscal year does not equal the closing balance of the same account for the previous fiscal year. It may be the case that the account in question is a Retained Earnings account and therefore the carry forward logic is not the same as for other all other GL accounts. Profit & Loss accounts behave differently to Balance Sheet accounts as we will shortly see.
First determine if the account in question is a Balance Sheet account or not by checking in transaction FS00 (FS03 also). Just enter the company code and account number in the selection and click on the "Type/Description" tab:
You will be able to determine whether the account is a "Balance Sheet Account" or not. Additionally It may also be the case that you can determine if the account is related to Retained Earnings by checking the description of the account in the "Short Text" and/or "G/L Account Long Text" as in the example above.
Next determine the Chart of Accounts related to the company code you are working with. This can be quickly checked in transaction OBY6 and selecting the company code:
Next, open transaction OB53. You first enter the Chart of Accounts and then press Enter. On the next screen you will see what Retained Earnings account is defined for your Chart of Accouts and Company code:
Now you know for sure whether the account in question is indeed a Retained Earnings account or not.
Balances are not carried forward in a normal way for the Retained Earnings account. The opening balance for a Retained Earnings account is calculated using the closing balance for the account and the sum of the closing balances of all the Profit & Loss accounts using the following formula:
As a result of this, the opening balance of a Retained Earnings account will not equal the closing balances of the previous fiscal year. Consequently, the balance of the Retained Earnings account will not match the sum of line item items since balances are carried forward to the Retained Earnings accounts from other Profit & Loss Accounts without any line items generated.
The Retained Earnings account is classed as a Balance Sheet Account, not a Profit & Loss account.
SAP Note 176067: Balance carryforward: Not equal to prev year closing balance
SAP Note 402917 : Balance carryforward is not correct