Calculating Net Income and Retained Earnings

You have acquired data from SAP S/4HANA accounting and external systems but that data does not include net income and current year retained earnings. Therefore, you need to run a task to calculate net income and current year retained earnings.

Let’s learn more about this below.

Reported financial data is usually collected with an initial imbalance in the balance sheet and income statement. The initial imbalance of the balance sheet must correspond to the imbalance of the profit and loss statement (or income statement). This imbalance includes data released from accounting and may also include imported data.

To correct the imbalance, the Calculate Net Income task has to be run.

The system posts the annual net income and current year retained earnings when you run the task. This ensures that the balance sheet and the profit and loss statement are consistent. Once the adjustment is posted, the two statements (balance sheet and profit and loss statement) balance again.

In the data monitor, you calculate net income and retained earnings every period by running the Calculate Net Income task. The annual net income is calculated and written to the current year retained earnings FS item in the balance sheet and the annual net income FS item in the income statement.

The Calculate net income and current year retained earnings figure below illustrates an example of calculating net income:

In this example, the initial imbalance of the balance sheet (-100) corresponds to the imbalance of the income statement (100).