Having trouble recording buy-ins

[Wm...]

Mon, 1 Feb 2016 12:18:29
<CANRwHB6LC1=EeGSpiLupQzYe9X8pXnFVV0FZDg+_gn=vss5e-g at mail.gmail.com>
Benjamin Melançon <ben at agaric.com> wrote...

>Hi all!

>Successfully using GnuCash for two years now!  But there's one thing i
>haven't gotten right— how to properly track our buy-ins.  We are a worker
>cooperative and want members to be able to receive a smaller payout each
>month until each person builds up to an equal equity stake.

>From our accountant, who did manage to use GnuCash last year: "I'm trying
to view the years transactions in the bank account and I don't know how to
do it.  To me it looks like some of the buy ins are increasing the bank
account and some guaranteed payments."

And that's what i see also.  I was hoping he'd say we have to create some
intermediate account or something, but while i still think this must be
more an accounting question than a GnuCash question, it is at least one
that my *accountant* doesn't see the answer to right off, either.

definitely accounting rather than GnuCash specific but I'll see if I can
think it through, or otherwise ask some Q's

Expenses:Guaranteed Payments:Benjamin  (Decrease) 300
Equity:Benjamin  (increase) 300

Hmmmn, the double entry works like this:
Expense Dr 300          <-- increase in Exp of the Co-Op
Equity          Cr 300  <-- increase in Equ of the Co-Op
because one leg is Equity the Co-Op is getting something for the
expenditure

Ordinarily money goes into Expenses:Guaranteed Payments for each person
from Current Assets:Checking.

Is this Expense money actually given to a person? i.e. leaving the
Co-Op?  If so
Expense Dr 300          <-- increase in Exp of Co-Op
A:Bank          Cr 300  <-- decrease money in bank of Co-op

 The problem is that instead of taking money
from the Guaranteed Payments account, above the Guaranteed Payments account
receives it from the Equity account just the same as from the Assets
account.

OK, have a think about the way I've set out the tx above and below

Dr Expense
        Cr Asset:Bank
is money going OUT of the Co-Op in return for something

Dr Expense
       Cr Equity:Ben
is (or should be) value / equity coming INTO the Co-Op measured in money


Trying to go directly from Assets to Equity again makes us gain money in
both accounts, or lose money in both accounts.  Which makes sense given the
equation Assets = Liabilities+Equity +(Income - Expense)— but there must be
a way to convert income which becomes an asset into equity.

Usually called a "transfer to reserves" for a non-profit or (possibly)
your co-op.  Basically a journal from somewhere in the Income (less
usually Expenses) accounts tree into the Equity tree.  Note: the
transfer is from the P&L or Income Statement accounts NOT the Assets [1]

What we want to happen with the buy-in process is Income -> Assets -> ?? ->
Equity

It's the ?? that i, and apparently also my accountant, need help filling in.

The equation would work if we go from Income to Equity, leaving it in
Assets (as it does stay in the bank account, though we'd happily move it
from checking to savings, but that would be immaterial to the main
questions here).  Is that what we should do?

Apologies for paraphrasing at length from this very helpful response
by David Cousens from 2014 August on this list when we were first setting
up, but it offers the clearest way statement of *a* way of doing this (i
think, will probably need accountant assistance for this if it is the way
to go):

[1] I may have misunderstood but I don't think the closing of a period
is the issue, lots of people here understand that bit.

====

I may be the only person in the world that doesn't know your meaning of
buy-in, OK? and from where I' sitting I'm not even sure it is equitable
but try this ... :)

Scenario:

Mary is old member, she gets real money for work done

Jane is new member, she gets less money for work done, the balance is
her contribution to the co-op up to some value

Work gets done by Jane & Mary, money goes into bank
Income             Cr 101 <-- money enters Co-op
Ass:Bank  Dr 101

Mary gets paid in money
Exp:Mary  Dr 10
Ass:Bank           Cr  10 <-- money leaves Co-op

Jane gets paid in money and equity
Exp:Jane  Dr 10
Ass:Bank           Cr   5 <-- money leaves Co-op
Equ:Jane           Cr   5 <-- money stays in Co-op, Jane's share of the
Co-op increase

Make sense?

Things I'm not sure of:

are the Guaranteed payments money actually exiting the co-op or money
the co-op owes a person which they may or may not draw later?

if the latter then it should be
  liability:person
rather than
  expenses:person

and in the case of the indentured workers both
  liability:person * .5
  equity:person * .5

with people then exercising their liability by drawing from bank (in
which case you better make sure you have real money assets, preferably
in a separate bank account to your operating bank account to match your
equity otherwise I can see room for things to go wrong).

Is there a description of this buy-ins model on the www that people can
read to understand the flow of money through the co-op?

Do I think I have answered your question?  No.  Hopefully the accounting
will be a little clearer and you can come back with a refined question.

P.S.  It is up to you, but you may want to restate (keeping same thread)
rather than intersperse comments with a long one like this.  I'm easy,
but if you re-present in a more clarified way you may get extra readers.

-- 
Wm...