S-Corp Distributions and GNUCash

Derek Atkins derek at ihtfp.com
Fri Nov 26 09:02:54 EST 2010


On Thu, November 25, 2010 5:35 pm, Christopher Blunck wrote:
> I can create an explicit account in equity and I can place my distribution
> transaction in there.  The trouble then becomes the Balance Sheet report
> looks "funny".
>
> There's an entry under Equity called Retained Earnings that shows a
> negative value (for the distribution) and then there's another bolded
> Retained Earnings that is the accumulated retained earnings for the books.
>  The Total Equity line number is correct though...  It's just confusing -
> the bolded Retained Earnings should really be the accumulated Retained
> Earnings minus whatever distributions were added to the explicit
> Equity:Retained Earnings account (imo).  That would be the cleanest way...
>

Name the account "Equity:Capital Distributions".  Yes, the account will be
negative, but that's okay.  Distributions always are.

The math all works out, and it's perfectly well within GAAP, and then you
don't have the same name listed twice.

Or you can modify the Balance Sheet report to merge the computed Retained
Earnings with the actual account Retained Earnings.  Patches always
welcome.

>
> -c

-derek

> On Nov 25, 2010, at 5:25 PM, Derek Atkins wrote:
>
>> Create an explicit account in equity and use it.
>>
>> -derek
>>
>> ----- Reply message -----
>> From: "Christopher Blunck" <chris at thebluncks.com>
>> Date: Thu, Nov 25, 2010 5:19 pm
>> Subject: S-Corp Distributions and GNUCash
>> To: <stepbystepfarm at mtdata.com>
>> Cc: <gnucash-user at gnucash.org>
>>
>>
>> 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
>>
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>
>



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