S-Corp Distributions and GNUCash

[Mike or Penny Novack]

Christopher Blunck wrote:

>Actually I believe this is a GNUCash question because I understand how this process would work on paper.  On paper there is a "close-out" procedure you typically perform at the end of your fiscal year where you increase Equity:Retained Earnings based upon whatever is your profit for the year.  A cash distribution to the owner is a transaction where Assets:Checking Account is decreased and Equity:Retained Earnings is decreased.
>
>The trouble is that GNUCash has no explicit "Retained Earnings" account.  It is calculated by GNUCash.  As a result I cannot decrease it when a shareholder distribution occurs.  If Retained Earnings is $1k and an owner takes a $250 distribution I would normally (on paper) just decrease Retained Earnings by $250 and it would still have a positive value ($750).  In GNUCash I can't do that (again because "Retained Earnings" is not an explicit account) and as a result the distribution has to come from some other Equity account (e.g. Shareholder Distributions).  Since there was no increase to that account but there are decreases the net result is that the value is negative (which doesn't smell right).
>
>Is there a GNUCash'y way of handling this?
>  
>
I can explain how I would handle it (and you will see why I asked if you 
knew how was done "pen and ink on paper")

Is your problem with the NAME of the "Retained Earnings Account"? A name 
conflict problem?

Suppose under equity you created an account named XYZ intended to ACT as 
the explicit retained earnings account?
Suppose you went through a normal ""close the books" process manually 
(two transactions (or one split both sides) that zeroed out all the 
income and expense balances to this account. Now GnuCash's implicit 
"retained earnings" is empty and the retained earnings for the 
accounting period is the balance of XYZ.

If there were drawings during the time period they would have been 
entered against XYZ (or some sub account under it to keep track of 
individual partner/shareholder  distributions)

I do not mean by this that the name used has to be as meaningless as 
"XYZ", just that the name is arbitrary. In practice you could use a 
meaningful name like "retained profit or loss".

Michael D Novack, FLMI