I’d suspect, more likely than not, if I were running a business that needed such accounting, I too would close the books each year. It would be nice if GC handled Equity accounts without having to do so, but as-is, the software is certainly usable for a more formal business case.
Regards, Adrien > On Apr 19, 2019, at 6:35 AM, David Cousens <davidcous...@bigpond.com> wrote: > > 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 _______________________________________________ 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.
