[GNC-dev] [GNC] Recording dividend payoffs

John Ralls jralls at ceridwen.us
Tue Apr 16 14:58:10 EDT 2019


Justin,

It's not a workaround, it's a choice. Either you close your books or you don't. If you do then you close to a Retained Earnings account and all is good. If you don't then GnuCash calculates your retained earnings for you and all is good. At present if you mix the two then you get two "Retained Earnings" lines in your report unless you name the account something else. So don't mix them.

If someone was so inclined GnuCash could handle a middle way to combine the calculated retained earnings with a designated (by report option, I suppose) retained earnings account and report it on a single line, but frankly I don't see much reason for that beyond pedantry.

Regards,
John Ralls

> On Apr 16, 2019, at 9:31 AM, Justin Mathew <mjustin at protonmail.com> wrote:
> 
> From what I have seen on GnuCash, we can generate profit loss statement for a fiscal year without closing the books. And therefore we can determine the dividends to be paid without closing the books. And anytime you generate a balance sheet, 'Retained Earnings' are mentioned. So we don't need to close any books to generate these figures.
> 
> If you calculate 'Retained Earnings' as your net income minus dividends for that fiscal year, don't we credit the 'Retained Earnings' account without closing the books?
> 
>> On the other hand, if you want to never close your books just create an expense account for dividends and exclude it from the various Expense reports and the Income Statement (aka Profit & Loss) report. That's not formally correct, but the result is the same.
> 
> I know this workaround, it was discussed in the user mailing list itself. The reason of this thread is to find a fix to this issue at least for the next release.
> 
> If we bring in a Dividend type account under Equity we can debit dividend declarations to this account. We don't have to credit this account by the way. The account will be in minus with red font as in current version. The balance in this account will be transferred to net account resulting in the proper 'Retained Earnings'.
> 
> Eg, total net income = $50,000
> Dividends are declared = $25,000 to be paid to shareholders
> Dividend Declared account in Equity will show -$25,000 since it is only debited.
> Retained Earnings = Net income + Dividend Declared = 50000+ (-20000) = 30000
> 
> When you calculate 'Retained Earnings' the way it should be calculated, it gives the accurate number whether the books are closed or not.
> 
> GnuCash has to work accurately with all businesses whether small or big, instead of using workarounds.
> 
> -
> Regards,
> Justin Mathew
> mjustin at protonmail.com
> 
> Sent with ProtonMail Secure Email.
> 
> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> On Tuesday, April 16, 2019 8:13 PM, John Ralls <jralls at ceridwen.us> wrote:
> 
>> The Retained Earnings part of the Balance Sheet report was written with that in mind.
>> 
>> The automatic calculation of retained earnings in the Balance Sheet report nets out the income and expense accounts; if there's a Retained Earnings account it will get reported too. Since the way to credit Retained Earnings (an Equity account) is to close the books, debiting all of the income and expense accounts by their balances and crediting Retained Earnings. Now income and expense are 0 and the calculated Retained Earnings line won't appear. You can treat its appearance as a reminder that you haven't closed the books yet.
>> 
>> On the other hand, if you want to never close your books just create an expense account for dividends and exclude it from the various Expense reports and the Income Statement (aka Profit & Loss) report. That's not formally correct, but the result is the same.
>> 
>> Regards,
>> John Ralls
>> 
>>> On Apr 16, 2019, at 7:22 AM, Christopher Lam christopher.lck at gmail.com wrote:
>>> Oops. My mistake: The "Retained Earnings" part in GnuCash's Balance-sheet
>>> has not been written with that in mind by the original report writers.
>>> Amendments to reports are possible but please submit an enhancement in
>>> bugzilla.
>>> Ideally with an suitable chart of accounts, with some sample real-life
>>> transactions.
>>> On Tue, 16 Apr 2019 at 14:04, Justin Mathew mjustin at protonmail.com wrote:
>>> 
>>>> Christopher,
>>>> 
>>>>> The "Retained Earnings" part of the Balance Sheet has nothing to do with
>>>>> dividends.
>>>>> IIUC on the balance sheet date X, the retained earnings simply means the
>>>>> total income up to date X, minus total expenses up to date X.
>>>> 
>>>> Don't get me wrong, the 'retained earnings' anywhere in accounting (not
>>>> just in the balance sheet) should have everything to do with dividends.
>>>> It's the accounting definition that 'Retained earnings' is the business'
>>>> net income - cash/stock dividends.
>>>> The definition of 'total income minus total expenses' works only for sole
>>>> proprietorships where the business isn't a legal entity in it's own right.
>>>> A registered business, however small it is will have at least one
>>>> shareholder. Most small businesses will have more than one from what I have
>>>> seen.
>>>> 
>>>>> From your description of 'owning a company with shares' / 'selling
>>>>> shares of company' / 'issuing dividends' I honestly have no idea how the
>>>>> books should look like, nor which chart of accounts should apply, nor
>>>>> whether the GnuCash reports are appropriate to produce useful reports.
>>>> 
>>>> Oh yes, GnuCash should be able fit in all business, because they all
>>>> follow the same accounting principles. All we need to do is to calculate
>>>> 'Retained Earnings' as per the standard accounting formula - it should
>>>> account for dividends paid.
>>>> Understanding which transactions are dividends to account for is a problem.
>>>> Dividends are a decrease in equity and can't be recorded in an 'Expense'
>>>> type account (although that's the current workaround and technically
>>>> wrong). Therefore what I suggest is to create a dividend account type under
>>>> equity (equity currently has only 1 type of account) which can be used to
>>>> record dividend declarations. The value of this account can then be
>>>> adjusted from total income. This will give us the real 'Retained Earnings'.
>>>> Note that: The corresponding journal entry for recording in dividend
>>>> declaration account is 'dividend payable' (which is a liability account
>>>> created by user). To record a dividend paid, a second record is created in
>>>> 'dividend payable' against the journal 'current account' or 'cash account'.
>>>> 
>>>> -
>>>> 
>>>> Regards,
>>>> Justin Mathew
>>>> mjustin at protonmail.com
>>>> Sent with ProtonMail Secure Email.
>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>> On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
>>>> christopher.lck at gmail.com> wrote:
>>>> 
>>>>> The "Retained Earnings" part of the Balance Sheet has nothing to do with
>>>>> dividends.
>>>>> IIUC on the balance sheet date X, the retained earnings simply means the
>>>>> total income up to date X, minus total expenses up to date X.
>>>>> If the books were 'closed' on date X, the income&expenses would be
>>>>> zeroed out to Equity:Closing Transactions. This is what Retained Earnings
>>>>> mean to reflect. They suit most sole traders / small businesses very well.
>>>>> From your description of 'owning a company with shares' / 'selling
>>>>> shares of company' / 'issuing dividends' I honestly have no idea how the
>>>>> books should look like, nor which chart of accounts should apply, nor
>>>>> whether the GnuCash reports are appropriate to produce useful reports.
>>>>> On Tue, 16 Apr 2019 at 12:39, Justin Mathew via gnucash-user <
>>>>> gnucash-user at gnucash.org> wrote:
>>>>> 
>>>>>> Maf,
>>>>>> 
>>>>>>> you should keep replies on-list, others can contribute and maybe in
>>>>>>> the future
>>>>> 
>>>>>>> the thread can save a question being asked in the first place....
>>>>>>> "reply All"
>>>>> 
>>>>>>> in your email client is a good way.
>>>>>> 
>>>>>> Opps, I had read about it, but missed it in the heat of replying.
>>>>>> Will keep that mind henceforth.
>>>>>> 
>>>>>>> Closing the books was important in paper days, not so much with
>>>>>>> digital
>>>>> 
>>>>>>> accounts where the software can do everything quickly & repeatably.,
>>>>>>> IMHO
>>>>> 
>>>>>>> closing books isn't really needed any more, as long as you keep
>>>>>>> secure backups
>>>>> 
>>>>>>> & reports etc for traceablity over the years.
>>>>>> 
>>>>>> Yes, I read this suggestion in gnu tutorial and concepts manual few
>>>>>> hours ago infact. I am new to accounting to be honest. Just learning it
>>>>>> with a fictitious company and transactions.
>>>>> 
>>>>>>> I have a part of the expenses tree that is something like
>>>>>>> "non-taxable". so
>>>>> 
>>>>>>> expenses:non-taxable:dividends or :corporationTax etc. Easy to
>>>>>>> exclude the
>>>>> 
>>>>>>> whole branch from reports rather than ad-hoc accounts.
>>>>>> 
>>>>>> And I didn't know that feature existed.
>>>>>> 
>>>>>>> whereas your earlier reference says that dividends are paid from a
>>>>>>> temproary
>>>>> 
>>>>>>> equity account that reduces retained earnings. (sounds like an
>>>>>>> "expense"
>>>>> 
>>>>>>> (english sense, not formal GAAP definition) to me, in that both
>>>>>>> sorts of
>>>>> 
>>>>>>> payment reduce retained earnings - just that dividends are after the
>>>>>>> profit &
>>>>> 
>>>>>>> tax calcs are done)
>>>>>> 
>>>>>> That's a good way to think. And I guess, this is the only workaround
>>>>>> at the moment. It does 'sounds' like expense but I am not too sure to say
>>>>>> that it 'is' expense.
>>>>> 
>>>>>> I don't know if I can call this a bug; but this isn't the technically
>>>>>> correct behavior. GnuCash is intended to be used in accounting spheres
>>>>>> regulated by different govts and laws. And because of this, GnuCash should
>>>>>> treat dividend payoffs in the standardized and technically correct way ie,
>>>>>> a dividend declaration account that is a part of 'equity' which reduces the
>>>>>> 'retained earnings' in reports.
>>>>> 
>>>>>> Anyway, let the more experienced development team make a call on this.
>>>>>> I shall raise this with the dev team as well. I am alao copying this to
>>>>>> gnucash-devel at gnucash.org. I am not a part of the dev mailing lists, but
>>>>>> I guess this will reach them.
>>>>> 
>>>>>> -
>>>>>> 
>>>>>> Regards,
>>>>>> Justin Mathew
>>>>>> mjustin at protonmail.com
>>>>>> Sent with ProtonMail Secure Email.
>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>> On Tuesday, April 16, 2019 5:34 PM, Maf. King maf at chilwell.net
>>>>>> wrote:
>>>>> 
>>>>>>> Hi Justin,
>>>>>>> you should keep replies on-list, others can contribute and maybe in
>>>>>>> the future
>>>>> 
>>>>>>> the thread can save a question being asked in the first place....
>>>>>>> "reply All"
>>>>> 
>>>>>>> in your email client is a good way.
>>>>>>> I think it is a bit of a technical distinction, GAAP left over from
>>>>>>> the days
>>>>> 
>>>>>>> of paper books. Formally, expenses are a (set of ) temporary equity
>>>>>>> account(s) that should be closed (or zeroed) to a retained earnings
>>>>>>> equity
>>>>> 
>>>>>>> account each year - to give a profit figure.
>>>>>>> whereas your earlier reference says that dividends are paid from a
>>>>>>> temproary
>>>>> 
>>>>>>> equity account that reduces retained earnings. (sounds like an
>>>>>>> "expense"
>>>>> 
>>>>>>> (english sense, not formal GAAP definition) to me, in that both
>>>>>>> sorts of
>>>>> 
>>>>>>> payment reduce retained earnings - just that dividends are after the
>>>>>>> profit &
>>>>> 
>>>>>>> tax calcs are done)
>>>>>>> Closing the books was important in paper days, not so much with
>>>>>>> digital
>>>>> 
>>>>>>> accounts where the software can do everything quickly & repeatably.,
>>>>>>> IMHO
>>>>> 
>>>>>>> closing books isn't really needed any more, as long as you keep
>>>>>>> secure backups
>>>>> 
>>>>>>> & reports etc for traceablity over the years.
>>>>>>> I have a part of the expenses tree that is something like
>>>>>>> "non-taxable". so
>>>>> 
>>>>>>> expenses:non-taxable:dividends or :corporationTax etc. Easy to
>>>>>>> exclude the
>>>>> 
>>>>>>> whole branch from reports rather than ad-hoc accounts.
>>>>>>> If you think that it is a bug / sub-optimal behaviour, by all means
>>>>>>> submit a
>>>>> 
>>>>>>> bug report or RFE for the devs to comment on. They know far more
>>>>>>> than me
>>>>> 
>>>>>>> about the GC architecture decisions etc.
>>>>>>> Maf.
>>>>>>> On Tuesday, 16 April 2019 12:21:52 BST Justin Mathew wrote:
>>>>>>> 
>>>>>>>> Yes, that seems to be the only way now. Gnucash doesn't complain
>>>>>>>> if we do
>>>>> 
>>>>>>>> that way. And you're indeed lucky that you're accountant doesn't
>>>>>>>> complain.
>>>>> 
>>>>>>>> :)
>>>>>>>> To think from a larger perspective now, I think GnuCash should to
>>>>>>>> handle
>>>>> 
>>>>>>>> dividends the right way; primarily because dividend isn't
>>>>>>>> technically an
>>>>> 
>>>>>>>> expense of the business and marking it as an expense will only
>>>>>>>> create
>>>>> 
>>>>>>>> issues later (eg, inaccurate certain expense reports, wrong
>>>>>>>> analytics,
>>>>> 
>>>>>>>> etc.).
>>>>>>>> If this behavior isn't because of the way we (users) are doing it,
>>>>>>>> shall I
>>>>> 
>>>>>>>> notify in the development list to consider this as an error and
>>>>>>>> correct it?
>>>>> 
>>>>>>>> -
>>>>>>>> 
>>>>>>>> Regards,
>>>>>>>> Justin Mathew
>>>>>>>> mjustin at protonmail.com
>>>>>>>> Sent with ProtonMail Secure Email.
>>>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>>>> On Tuesday, April 16, 2019 4:42 PM, Maf. King maf at chilwell.net
>>>>>>>> wrote:
>>>>> 
>>>>>>>>> Hi Justin,
>>>>>>>>> while it is contrary to the advice given in the link you
>>>>>>>>> supplied, I've
>>>>> 
>>>>>>>>> always recorded dividend payouts as an Expense - but it is one
>>>>>>>>> of a
>>>>> 
>>>>>>>>> handful that are excluded from the corporation tax calc, as they
>>>>>>>>> are
>>>>> 
>>>>>>>>> declared after tax / from profits.
>>>>>>>>> My accountant has never complained - UK regs - YMMV, of course!
>>>>>>>>> Maf.
>>>>>>> 
>>>>>>> --
>>>>>>> Maf. King
>>>>>>> PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7
>>>>>>> C542
>>>>> 
>>>>>> gnucash-user mailing list
>>>>>> gnucash-user at 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.
>>> 
>>> gnucash-devel mailing list
>>> gnucash-devel at gnucash.org
>>> https://lists.gnucash.org/mailman/listinfo/gnucash-devel
> 
> 



More information about the gnucash-devel mailing list