Question on LLC member distributions w/o closing books

Buddha Buck blaisepascal at gmail.com
Tue Feb 24 18:01:10 EST 2015


On Tue Feb 24 2015 at 5:18:00 PM Edward Doolittle <
edward.doolittle at gmail.com> wrote:

> OK, let me check in again.
>
> 1) The benefit of closing the books is that some important number(s)
> (e.g., Retained Earnings) are reflected in the chart of accounts, from
> which an appropriate owner's draw can be calculated for the period between
> two book-closings. The drawback, on the other hand, are that we are stuck
> without that useful information (and other useful information) except for
> certain moments in time (e.g., December 31 of each year).
>

The big question which drives the rest of this is what are those important
numbers derived by the closing of the books?

Traditionally, closing the books zero'd the income and expense accounts, so
the income statement basically falls right out of the process of closing
the books. Almost to the point that closing the books and preparing the
income statement are two sides of the same process.

The retained earnings is also calculated, since it's where the income and
expenses get zero'd to.

I don't know what else gets calculated.


> 2) If we don't close the books, we can access some useful information any
> time, but the drawback is we don't have a nice number sitting at some
> location in our chart of accounts which represents an appropriate amount
> for owner's draw.
>

We don't have a retained earnings account, and the income/expense balances
represent all-time totals, not the total for the current accounting period.

It seems to me that the drawbacks in both cases can be mitigated. In the
> first case, we can make periodic estimates of what is likely to happen
> (based on the information we currently have and future predictions from
> budget, say) on December 31. In the second case, we can mitigate the issue
> by calculating the appropriate amount using the correct *report* instead of
> just the summary information embedded in our chart of accounts. Whether the
> necessary report comes supplied with GnuCash, I don't know.
>

The supplied balance sheet report account includes a line of the calculated
retained earnings, which would be equal to the retained earnings account in
the closed-books case assuming all earnings were retained. The retained
earnings figure is necessary to make the balance sheet balance, as it
counts as equity that needs to be there for balance.

The supplied income statement report takes as an option starting and ending
dates and only considers transactions between those two dates. The effect
is that the income statement gives the same report as if the books had been
closed immediately before the start date of the report.


> It seems to me that the second way is far more flexible and natural, and
> that the first way is a holdover from pen and paper days, but I understand
> there can be a difference of opinion about such things.
>

The flexibility of the second way is why GnuCash recommends it, and why the
existing reports all deal with it, giving the desired numbers properly
computed and everything based on whatever dates make sense (for instance,
generating standard accounting reports for both calendar months and periods
between board meetings).

As near as I can tell, the one thing which is not dealt well with the
not-closing-books and existing reports is the issue of dealing when
retained earnings cease to be retained.


More information about the gnucash-user mailing list