Accounting Treatment of Taxable IRA Distributions

[Mike or Penny Novack]

>You misunderstand. The IRA is an asset, the distribution from the IRA is
>income which decreases the IRA account and increases the Income account
>and increases the bank (cash) account.
>
>Les
>
>  
>
No, I don't misunderstand.

The transfer of amounts between one asset account an another isn't 
"income". You are confusing that because it is a tax deferred account 
you have to report this as income for tax purposes. Heck, in this case 
there is actual money amounts (in other cases you may have to report 
"implied" income amounts to the government even though you haven't 
actually received any money --- for example, that portion of employer 
contributed insurance premiums for the part of the policy > $50,000)

In your income tree, have you been carrying all along a child for 
"deferred income"? (in other words, HOW were you accounting for the 
contributions you made to the IRA and how were you accounting for the 
unrealized gains in the account). If you had been you would not be 
having any problem as the transaction would be IRA => checking account 
and deferred income => current income. My description of what to do now 
was assuming that you had not been doing that. Income and expense 
accounts are actually (temporary) accounts of fundamental type equity.

In traditional bookkeeping income and expense accounts are closed to 
equity at the end of each accounting period. Only asset, liability, and 
equity accounts are standing. That's why I would have put the "deferred 
income" account as a child under equity.

Michael