Hi Justin I certainly prefer the approach of declaring dividends as a contra acunt to Retained Earnings and/or debiting it directly to Retained Earnings but it will require closure of the books to provide retained earnings to handle it properly.
That said there is nothing technically wrong in accounting terms with having a dividend expense account which is closed to Retained Earnings. The act of closing it to the Retained Earnings subtracts the dividend from Equity in this case. The only difficulty is that the procedure is not as clear in making it obvious that dividends are paid out of profits. The problem with how the reports deal with Retained Earnings is another issue. Retained Earnings is a permanent account of a business. The net income or profit/loss is only a periodic increment or decrement in that account value not the value of Retained Earnings itself. GnuCash for the reporting must calculate Retained Earnings as Income - Expenses calculated from when the since books are opened. If the dividends are accounted for with an expense account, then they have been deducted from Retained Earnings and hence from Equity. However they will not appear as a line item unless listed in the expenses. Depending on tax rules they may or may not be a deductible business expense, generally not in most jurisdictions as in most cases where dividends are paid out of after tax profits. Specific jurisdictional rules could however prevent using expense accounts to record dividends. If I was running a business and using GnuCash, I would be closing the Income and Expense accounts to Retained Earnings using the closing procedure to zero out the temporary accounts. That way the closing transactions are explicit and as long as the Balance Sheet is calculated at a date after the transactions for the dividends have been applied they should be reported in the balance sheet. Using the contra account should allow you to list them explicitly in a Balance Sheet report if you need to. David Cousens ----- David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
