S-Corp Distributions and GNUCash

[Christopher Blunck]

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?


-c

On Nov 25, 2010, at 6:54 AM, Mike or Penny Novack wrote:

> Tom Peterson wrote:
> 
>> I have an 'Expense:Shareholder Distribution' account so when I distribute retained earnings I have a transaction involving the bank account and the Expense:Shareholder Distribution account.
>> 
> Best not to confuse him? An S Corporation is an incorporated partnership (in effect)
> 
> As usual I will begin by reminding folks that I am not a certified accountant and that this is really an accounting question, not a GnuCash question (do you know how you would do this were you keeping the books the old fashioned way pen and ink on paper?).
> 
> Drawing accounts are negative with regard to equity. Whether these drawings represent a net reduction of entity equity depends on whether the profits during the period (the retained earnings) are greater or not. For regular corporations distributions are supposed to come from profits (retained earnings) but partnerships are not restricted to that. I can't advise to the legalities of the "S" form.
> 
> Michael