Question on LLC member distributions w/o closing books

[Wm]

Tue, 24 Feb 2015 23:01:10 
<CAAyPE3DSzxYwWxUX6uJ0UkDg63p0r6-MvRqayyavRs23CZgJtw at mail.gmail.com> 
Buddha Buck <blaisepascal at gmail.com>

[I'm responding to both Ed and BB as they have sensible stuff to respond 
to]

>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,

Not quite, the same numbers are there in the balance sheet before the 
closing of books and after.  The minor or sub account CoA details aren't 
a big issue here so long as the top level Balance Sheet stuff is right.

>>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.

That is it, really.

gnc is unusually honest amongst accounting s/w in that you can run Tools 
/ Close Book for arbitrary periods, do whatever you want based on the 
sums produced *and* then go back to your Equity accounts and delete the 
pesky artificial transactions that you didn't want in the first place 
... or keep them ... or delete one lot and generate another set, feel 
free.

Some people coming from other accounting s/w approach closing 
transactions with unnecessary trepidation.  They're a convenience not a 
requirement.

This concept is very hard for rule bound individuals to absorb.

>> 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.

me nods, but as above there is nothing stopping Ed or anyone else using 
the Close Book to generate useful numbers, use them to apportion p&l 
(alternatively called quaint drawings) and then delete the unwanted 
transactions.

The distribution doesn't change if you delete the artificial account 
with one exception, don't use the dummy account as a leg in your 
distribution unless you are prepared to pick up the other leg after 
Actions / Check + Repair :)

>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.

Me nods, gnc's two main balance sheets provide an interesting 
comparative view of the same position for students <-- I am still one in 
that I continue to learn.

>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.

gnc provides a good set of flow documents, before, after, in-between is 
what you want.

>> 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.

It's been a few days now and I'm wondering what you meant by the last 
bit.  If I understand your "not dealt well" I think the answer is in the 
Balance Sheet.  If the book produces or loses money the account, virtual 
or otherwise where that is shown is an Equity account.  Ergo the 
distributions or liability to distribute should be reflected in Equity.

All the same thing happening just different ways folks are used to 
seeing it represented.

-- 
Wm...