Accounting for dividends

[Mike or Penny Novack]

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>
>>On Monday 12 April 2010 05:46:15 Paul A. wrote:
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>>>The thing that makes dividends so tricky is that they are not an expense.
>>>Treating them as an expense screws up the P&L statement.  Yet you don't
>>>really want them accumulating in some flavor of an equity account,
>>>because money paid out in dividends or drawings is not in the business
>>>      
>>>
Maybe shouldn't have to keep saying this, but GnuCash is a tool to use 
for accounting/bookkeeping. It isn't a substitute for knowing HOW to do 
the accounting/bookkeeping. This isn't a case of GnuCash "getting it 
wrong" but not knowing how to set up your books and how to do 
"accounting for the small corporation". You either need to learn how to 
do this for yourself  or you need to hire an accountant to set up your 
books and explain  how you enter the transactions.

I am not an accountant (hence not qualified to advise). And I never had 
to keep the books for a business corporation (The 501(c)3 organization 
for which I keep books of course neither pays dividends nor taxes). But 
from memory of having once read some "Accounting 101" books.

1) Dividends become a corporate liability when declared by the board. 
Thus a transfer between equity and liability (which are on the same side 
of the books).
2) When paid a decrease in that liability and the current account 
against which the dividend checks drawn (which are on opposite sides of 
the books).

In a large/normal corporation normally a significant time difference 
between those dates. I suspect the problem here in not seeing how to 
record the transactions is that with the very small, closely held, maybe 
sole corporation on the same date and so not seeing that really two 
transactions.

Michael D Novack