Question on LLC member distributions w/o closing books

[Buddha Buck]

On Sat, Feb 28, 2015 at 5:29 PM Wm <wm+gnc at tarrcity.demon.co.uk> wrote:

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

The issue is deciding where to distribute the retained earnings from.

Keeping in mind that this question arose in connection with an LLC with a
small number of owners, what it seems like is that when earnings are
distributed to the owners, we'd like the balance sheet to go from something
like:

Total Assets 1,000,000
======
Total Liabilities 100,000
------
Retained Earnings 800,000
Owner 1 Equity 50,000
Owner 2 Equity 50,000
Total Equity 900,000
======
Total Liabilities and Equity 1,000,000

To something like

Total Assets 9,000,000
=======
Total Liabilites 100,000
-----
Retained Earnings 700,000
Owner 1 Equity 50,000
Owner 2 Equity 50,000
Total Equity 800,000
=====
Total Liabilites and Equity 900,000

With book closings, this could be accomplished by a transaction like:

2014-03-31 Distribute Earnings to Owners
  Pay Earnings To Owner 1, Credit Asset:Checking $50,000
  Pay Earnings To Owner 2, Credit Asset:Checking $50,000
  Distribute Earnings, Debit Equity:Retained Earnings $100,000

Without book closings, there is no Equity:Retained Earnings account, so the
above transaction won't work. There is no clear guidance as to what to do
instead.



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