The core bookkeeping sums, each with its working
Four jobs share this page because they share one discipline: every figure must reconcile. Retained earnings roll forward from opening to closing with nothing vanishing on the way. The ratios are computed only from the classifications you enter, and say “not calculable” rather than inventing a denominator. The journal checker totals debits and credits and refuses to call an entry balanced when it is not. The equation check holds assets against liabilities plus equity and names any difference to the cent.
Disclaimer: This calculator gives estimates for general information only. It is not financial, medical or other professional advice, and it is not accounting or tax advice. Classifications follow the usual textbook definitions named on this page; your reporting framework and chart of accounts govern your actual statements.
What this calculator does
It covers the four computations a small business or a student reaches for most, and it performs each one the way the textbooks define it, with the reconciliation left visible. Retained earnings are rolled forward on the standard statement (opening balance, plus net income, less dividends, equals closing balance), with net income either entered directly or built from revenue and expenses. The ratios are the standard liquidity, leverage and profitability set, each computed strictly from its named ingredients. The journal checker enforces the one rule double-entry bookkeeping cannot bend: total debits equal total credits, or the entry is not finished. The equation check states the oldest identity in accounting and prices any breach of it.
How to use it
- Retained earnings are not cash and not profit. The closing balance is the accumulated profits the business has kept, on paper, since it began, less every dividend declared. A healthy retained earnings figure can sit beside an empty bank account (the profits are in stock, receivables and equipment), and a dividend is legal to declare only within the rules of your jurisdiction and your company’s solvency, whatever the balance says.
- Dividends are not expenses. They never pass through net income; they come off retained earnings after profit is struck, which is why they sit where they do in the statement here. Putting them in expenses understates profit and then subtracts them twice.
- A ratio without its classification is a rumour. Current ratio means current assets over current liabilities, with current meaning the operating cycle or twelve months by the usual convention. Enter balances classified the way your statements classify them; the page computes from your classification and names it in the results, so a reader can see exactly which definition produced the number.
- The quick ratio exists because inventory is slow. It removes inventory from current assets before dividing, asking the harder question: could this business meet its short-term bills without selling stock first? Comparing the two ratios is the analysis; either alone is half of it.
- Journal lines: one side each. Every line of an entry is a debit or a credit. The checker enforces that, totals the sides, and if they differ it says by how much and which side is short, which is the only two facts you need to hunt the error.
How it is calculated
- Closing retained earnings = opening retained earnings + net income – dividends declared. Net income, when built here, = revenue – expenses, and the direct net income field is used only when revenue and expenses are both blank.
- Current ratio = current assets / current liabilities. Quick ratio = (current assets – inventory) / current liabilities. Working capital = current assets – current liabilities.
- Debt to equity = total liabilities / total equity. Gross margin = (revenue – cost of goods sold) / revenue. Net margin = net income / revenue. Return on assets = net income / total assets. Return on equity = net income / total equity.
- Journal check: debits and credits are totalled independently; the entry balances only when the totals are equal to the cent.
- Accounting equation: assets – (liabilities + equity) = 0 when the books balance; any other result is reported as the difference, with its direction.
Worked examples
The roll-forward. Opening retained earnings of $250,000; revenue $480,000 against expenses of $395,000 gives net income of $85,000; dividends declared $30,000. Closing retained earnings: 250,000 + 85,000 – 30,000 = $305,000. The business kept $55,000 of the year’s profit inside itself, which is the sentence the statement exists to say.
The ratio set. Current assets $180,000 (including $45,000 of inventory) against current liabilities of $90,000: the current ratio is 2.00, the quick ratio 1.50, and working capital $90,000. Total liabilities of $210,000 against equity of $190,000 give debt to equity of 1.11: the business runs on slightly more of other people’s money than its owners’. On revenue of $600,000 with cost of goods sold of $360,000, gross margin is 40.00%; net income of $54,000 is a 9.00% net margin, a 13.50% return on $400,000 of assets and a 28.42% return on equity, the last figure flattered by the leverage the debt-to-equity ratio just confessed to.
The journal that balances, and one that does not. Recording a sale: debit Cash $5,000, credit Revenue $5,000; paying rent: debit Rent expense $1,200, credit Cash $1,200. Totals: debits $6,200, credits $6,200, balanced. Add a stray $300 debit with no credit and the checker reports the entry out of balance with credits short by $300.00, which is precisely where the hunt starts.
The equation, both ways. Assets of $400,000 against liabilities of $210,000 and equity of $190,000: balanced exactly, as the double-entry system promises. Drop the equity figure to $180,000 (a dividend recorded in one place and not the other is the usual culprit) and assets exceed liabilities plus equity by $10,000.00: the books are wrong somewhere by exactly that much, and the size of the difference is the first clue to its nature.
Reading your results
For retained earnings, read the movement, not the level: the gap between net income and the change in the balance is the dividend, and a business whose balance falls in a profitable year has paid out more than it earned, which is sometimes policy and sometimes a slow leak. For the ratios, read them as a set: liquidity (current and quick), leverage (debt to equity) and profitability (margins, ROA, ROE) constrain each other, and a splendid ROE standing on a debt-to-equity of 4 is a different animal from the same ROE unleveraged. For the journal and equation checks, treat any difference as a locating device: its size and direction narrow the search (a difference divisible by 9 hints at transposed digits; a difference equal to a line item hints at a one-sided entry) far faster than re-reading every line.
Limitations
- Textbook classifications are the default. Frameworks differ at the edges (what counts as a current liability in a business with a long operating cycle, how some instruments are classified), and your statements follow your framework, not this page.
- Averages are not used. Careful ratio analysis often divides income by average assets or average equity across the period; this page uses the balances entered, which is the common first-pass convention and is stated in the method so the figures can be interpreted correctly.
- The journal checker validates arithmetic, not correctness. An entry can balance beautifully and still post the right amount to the wrong account, or record a transaction that never happened. Balance is necessary; it has never been sufficient.
- Nothing here files, audits or advises. The page computes the standard forms from your figures; judgements about recognition, measurement and disclosure belong to your accountant and your reporting framework.
Frequently asked questions
How are retained earnings calculated?
Opening retained earnings, plus the period’s net income, minus dividends declared in the period. That roll-forward is the whole statement of retained earnings, and this page prints it line by line so each element can be checked against its source: the opening against last period’s closing, the net income against the income statement, the dividends against the declaration.
Why are dividends not subtracted before net income?
Because dividends are a distribution of profit, not a cost of earning it. Expenses are what the business consumed to generate revenue; dividends are what the owners took out afterwards. Charging them as an expense would understate profit, distort every margin, and then, since dividends also reduce retained earnings, subtract the same money twice.
What is the difference between the current ratio and the quick ratio?
Inventory. The current ratio divides all current assets by current liabilities. The quick ratio first removes inventory, the current asset that takes longest to become cash, and asks whether the rest covers the bills. A business can post a comfortable current ratio and a failing quick ratio when its liquidity is sitting on shelves, which is exactly the situation the pair of them exists to reveal.
What does it mean when a journal entry does not balance?
That it cannot be posted as it stands: double-entry bookkeeping requires every transaction to carry equal debits and credits, so an imbalance is proof of an incomplete or mis-keyed entry. The checker’s difference is the diagnostic: it equals the missing or doubled amount, and the side that is short is where the missing amount belongs.
Related calculators
Method: retained earnings as opening plus net income less dividends; ratios on the textbook classifications named in the results; journal entries required to balance debits against credits to the cent; the accounting equation tested directly, exactly as defined on this page. Last reviewed: 13 October 2026.