retained earnings - equity queries

[Shane Litherland]

Hiya, bit delayed in response, no internet for a few flooded days in
this part of the world,

You both seem to ask a similar q, so here's how I used Gnucash for
documenting retained earnings:

certain INCOME was, for tax purposes, also attributable to myself (not
the business), to add a further step for me (may not be relevant for
you), but I tracked this amount using a LIABILITY:PERSONAL SERVICES
INCOME acct, transferring from INCOME to this acct, thereby the reports
showed what the tax agent considered 'business' in the income reports,
but I could still see how much came into the business through my
'personal' stream (basically, contract work secondary to my main
business activity).

At the end of the financial year, as I still kept this money in the
business, I had a txn to transfer the balance of the
LIABILITIES:PERSONAL SERVICES INCOME to an EQUITY: RETAINED EARNINGS
account. note this sort of acct is already included in a gnucash acct
tree if you set it up for business. or add one to suit yourself.

You could possibly do it directly from the INCOME acct to the EQUITY
acct, but I found having and interim LIABILITY was easier to follow
things through the year and then do one balance at the end.

I also had some private drawings that I would balance against the
retained earnings - basically, a tree in EXPENSES that duplicated
business sub-accts but were labelled as 'private' (e.g. 10% of car rego
may have been private apportionment). I would then tfr the private
expenses amount to an EQUITY:PARTNER CONTRIBUTIONS acct so my reports on
expenses showed business amounts only (the private accts balanced at
zero). Then depending on whether I had made more contributions or more
drawings, I could balance that PARTNER CONTRIBUTIONS equity acct against
the RETAINED EARNINGS equity acct.

Again, you can probably achieve similar outcome with a few less steps,
but I used the above process so I could still clearly report on relevant
business expenses, income streams and retained earnings for doing tax
returns etc.

I think, this process is probably close to what is termed 'closing the
books' but I don't actually do that for all my accts each year, doesn't
seem necessary for the way I monitor my cash/banking, expenses etc.

If the accountant was wanting a 'retained earnings' field as a way to
'close books' then maybe you'd have to be doing this type of step for
each of your income and expense accounts (or for the highest part of the
tree that would zero things out)... check that up with more
accountant-minded folks :-) or see what you can read about closing
books...


As a side note, (and might address Q1 for Joost), there are some
accts/reports that I adjust on the end of the financial year/quarter,
that I like to see the before/after amounts (e.g. run a report, figure
out the liability, process the payment..) but if I want to re-run that
report later, rather than fiddle with the payment, i add a
'temp-reporting-reversal' txn(same date as payment)  which I can either
set to zero, or the amount paid/owed (noted in txn memo), depending on
how I want to view a report. Other posts had discussed similar issue by
doing part of a txn on last day of FY, then wrap up txn on first day of
next FY, but that was messy for my setup. You might find this 'trick'
useful if you set up something like above for tracking retained
earnings...

-Joost, if last bit here is along the lines of addressing your Q1, but
you want a bit more discussion, let me know :-)

HTH,
shane.