Accounts structure for a worker cooperative (read: partnership) with expense accounts

[Buddha Buck]

I am not an accountant. I have written accounting software (not GnuCash),
so I have some domain knowledge, but I am not an accountant. As such, my
first bit of advice is to talk to an accountant who is competent in your
jurisdiction, since local laws and practices may change how this should be
handled.

Given that, here's my advice.

It is reasonable to set up an equity account for each member of a
partnership, especially if each member can take money out ("draw") of the
business based on their equity. If Benjamin can take $1000 out of the
business to pay his personal rent, then Benjamin's equity is going to be
different than Stefan or Michele's equity. So setting up separate accounts
would make sense.

Traditional accounting practice is to use income/expense accounts to track
income and expense over a certain time frame, then at the end of the
accounting period to "close" those accounts, clearing their balances into
an equity account (Equity:Retained Earnings), and then distributing those
retained earnings to the equity partners, as appropriate. So if, in 2013,
your co-op made $38000 in sales and paid $26000 in rent and supplies, you
would debit your income accounts by 38000 (total), credit your expense
accounts by 26000, and credit your retained earnings account by 12000. Then
you would debit your retained earnings by 12000, and credit each of your
personal equity accounts by 4000 each.

Income and expenses are already (sort of) sub-accounts of equity, as equity
represents the value of the business owned by the owners, and income and
expenses represent increases and decreases in equity. So right away, seeing
"Assets:Current Assets:Expenses_Benjamin" is unsettling to me.

I would be more tempted to create an "Assets:Checking:Benjamin"
sub-account, and at the beginning of the month debit it by budget amount
crediting "Assets:Checking". A sale would debit "Assets:Checking", and
Benjamin buying a business-related supply would credit
"Assets:Checking:Benjamin". I believe it can be set up so that the register
or reports for Assets:Checking will include the transactions in the
sub-accounts, so it can be reconciled against the bank.  If you go
over-budget, it would show up as a negative balance for your sub-account.

At least, that's how I would try to set it up. I don't know if that will
fully work, but it seems right to me.




On Wed, Jul 30, 2014 at 9:03 AM, Benjamin Melançon <ben at agaric.com> wrote:

> We are a small collective, worker-owners each with an equal share in the
> company.  We're moving to GnuCash for accounting and i have two questions
> about equity accounts and expense accounts.
>
> My first question is how to set up equity accounts.  This is for a worker
> co-op, but any partnership would probably do the same.
>
> The documentation mentions creating an Equity subaccount for each member as
> an option —
> http://www.gnucash.org/docs/v2.6/C/gnucash-guide/accts-types1.html — which
> i've done, but i'm not clear what we put in as a contribution should
> balance *with*.  Practically, we started the company with nothing, and so
> would be putting in our equity contributions from earnings.
>
> Say our first income was a $12,000 check.  It goes in Assets:Current
> Assets:Checking and is balanced by an entry in Income:Sales.  We could make
> three transactions where three debits from Income:Sales is matched by a
> credit each in Equity:Benjamin, Equity:Michele, Equity:Stefan?
>
> Because we are all always going to have equal equity we could skip
> accounting for it in Gnucash.  The second question is i think parallel in
> how it would be structured and needs to be accounted for in GnuCash for our
> regular operation:
>
> How to set up accumulating expense accounts for each member.
>
> The idea is that as long as it's business-related, we let members of the
> collective control their own budgets.  This would probably also be
> equivalent to giving departments their own budget.  If the money isn't
> spent one month, it accumulates in the expense account for later months.
>
> I've read how this would be best covered by categories or tags, a feature
> GnuCash doesn't have, but i think there is in fact value to doing it with
> real accounts, if i can figure out what balances with what.
>
> We can create Assets:Current Assets:Expenses_Benjamin etc., and move $500
> each month in there from Income:Sales?  But then in looking at an expense
> imported into Assets:Current Assets:Checking i'm just not sure how to say
> it's coming from Assets:Current Assets:Expenses_Benjamin and going to
> Expenses:Office Supplies, say.
>
> Am i close or far off?
>
> I have searched rather extensively for answers to this, and am eager to
> contribute to documentation once we figure this out!
>
> Thank you greatly for GnuCash and any help in using it,
>
> ben
>
> http://agaric.com
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