Business: accounting for dividends

[Graham Leggett]

Jeremy Miller wrote:

> Not exactly.  Dividends is a temporary equity account that is also 
> closed at the end of the year.  So you'll want to do something like this:
> 
> 12/31 (or date dividends are declared if earlier)
> Dividends                  10000
>    Dividends Payable - Joe             2000
>    Dividends Payable - Susan         3000
>    Dividends Payable - William       5000
> 
> 12/31 (or date of closing)
> Retained Earnings      10000
>    Dividends                           10000
> 
> The process of closing typically goes:
> 
> Close income and expense accounts to Income Summary
> Close Income Summary to Retained Earnings
> Close Dividends to Retained Earnings
> 
> Once you close Dividends to Retained Earnings by debiting R.E. and 
> crediting Dividends, you should be good to go.

In the case of gnucash, there is no explicit retained earnings account, 
this is calculated automatically. This allows you to follow on your 
accounts without the need to zero everything out at the end of the year.

If there was a way to automatically handle the zeroing out of dividends 
it would be ideal, but first one would have to figure out the correct 
accounting way to handle it.

Right now I suppose you could kludge it by creating a final balance 
sheet for tax purposes, and then adding an extra transaction to zero out 
the dividends account. The problem with this is that you cannot recreate 
the balance sheet for a previous year, which might raise eyebrows if 
audited and you haven't versioned your gnucash file somehow.

Regards,
Graham
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