Question on LLC member distributions w/o closing books

Wm wm+gnc at tarrcity.demon.co.uk
Fri Feb 20 18:54:19 EST 2015


Fri, 20 Feb 2015 12:32:21 <54E77DB5.2030405 at cmail.nu>  Matt Kowske
<jmk at cmail.nu>

>Hello all,

Hi

>I am struggling with accounting for member distributions in GnuCash.

I think I can see why, bear with us, if I don't get it right someone
else will be along shortly.

> I
>am using GnuCash for bookkeeping of a small two member LLC that owns a
>rental property. As I understand traditional accounting this would work
>something like this:
>
>Equity accounts:
>
>Member A Equity
>Member A Contributions
>Member A Distributions
>Member B Equity
>Member B Contributions
>Member B Distributions
>Retained Equity

Sort of. As an aside you can edit the Contributions and Distributions
accounts of each Member and move them under their respective Equity
account and gnc will do the sums for you.  It may help conceptually if
you do that.

e.g.

Equity
  Opening Balances
  MA
      In
      Out
  MB
      In
      Out

Never forget the Opening Balances for the LLC as a whole and you'll
notice I left out Retained Equity altogether for now.

>At the end of each accounting period the Income/Expense accounts are
>zero'd to the Retained Equity account. 'Member A Equity' and 'Member B
>Equity' are credited from the 'Retained Equity' account according to
>their share in the LLC and also zero'd with the
>Contributions/Distribution accounts. When a distribution happens there
>is a debit to the Distributions account and a corresponding credit to a
>checking account that holds the LLC funds.

Ah, so the LLC does have Assets and Liabilities after all.  You seem to
be running the LLC exclusively through Equity, Income and Expense and
not acknowledging much if any Assets or Liabilities the LLC may have as
an entity.

>Now -- I've read in various places that closing of the books is not
>necessary in GnuCash.

Yup, gnc presumes financial entities last longer than one accounting
period :)

> I THINK how this would be done if you take that
>route is to not have the 'Retained Equity' account

yup, you can play with it now or later if you want.

if you are going to arse about with retained equity in a two person LLC
then why not divvy it out there and then?  the answer is probably tax
but don't make the LLC something it isn't is my advice.

>and just let that be
>auto-calculated on the balance sheet. Distributions would still occur
>against the same account (e.g. 'Member A Distributions').

Not quite, gnc is mainly used to do the sums for "a book" in this case
the entity "the book" seems to encompass is the LLC, if you want to take
some or all of the Assets of the LLC, and transfer them to the Equity
accounts of A and B then that is cool so long as you record that in most
places.  Normally you transfer the money out of the entity accounts and
into the Member Accounts by writing a cheque or making a bank transfer.

Neat and tidy for the LLC Equity Account.

> The problem I
>see with this is that your 'Retained Earnings' line on your balance
>sheet is no longer accurate.

It is a sum, remember, a balance sheet is at a point in time from a
point in time.

> Since it is just 'Income-Expenses' it will
>not account for the member distributions that happened.

Wouldn't that be because you haven't actually made them? If you do make
them they will be included.

> From what I
>understand it SHOULD account for this as the definition of retained
>earnings is net profit - dividends (which in this case is called a
>distribution).

Try the Equity Statement for another view of were you started, where you
ended up and what happened in between with a few dates (try a few months
apart where you know something or nothing happened to get the feel) to
see if things make more sense.

>I am struggling with where the distributions ultimatley come from in the
>double entry accounting

That's easy.  Assets (decrease) or Liabilities (increase).

Alternatively, you could try and run an entire business through Equity.

Now where were we????

>when you don't close out the income/expenses.

It is irrelevant to the payout if you don't try to run the whole thing
through Equity.  The other balance sheet accounts are there for a
reason, use them!

> I
>would like to know how others handle this -- thanks.

One way is to run some reports, work out who gets what and make
appropriate payments.  Record them.  Ordinary.

-- 
Wm...


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