65-day distributions and other prior year transactions

[John Ralls]

> On Apr 3, 2017, at 9:25 AM, derrjd <derrjd at gmail.com> wrote:
> 
> John or anyone else,
> 
> I am trying to set up a liability account to use to "flow the distribution
> through" so that the trust distributions of 2016 income will be accounted
> for even if they are made in 2017 (which the IRS allows). I have created a
> liability account call "Liabilities: Unpaid Income Distributions". Where
> does the other side of the transfer go? To an expense account? Would I use
> the same expense account I presently use when I make a distribution, i.e.
> "Expenses: Distribution of Income"?
> 
> If this is correct, do I have to enter the dividend income twice, once as
> income and once as a liability, or can I enter it all on one register
> ("Income: Dividend"/"Asset: Cash, Income" and "Liabilities: Unpaid Income
> Distr."/"Expenses: Distribut.....")???
> 
David,

The liability would use whatever "other" account you normally use for making a distribution. I'd call it an Equity account because it's not really an expense, but for the purposes of the accounting equation income and expense are special forms of equity so if nobody's auditing the books you can call it whatever you want.

If the trust is simple, meaning that all income (but not capital gains) are paid out as distributions in the same year as received then to be absolutely correct an income transaction should have four splits: Income:Dividends->Assets:Cash and Equity:Distributions->Liabilities:Unpaid Distributions, and you'd have a separate transaction, probably monthly or quarterly, to pay the accumulated distributions, Assets:Cash->Liabilities:Unpaid Distributions. For a complex trust (one where the income is retained in the trust estate and distributions are paid either as a fixed allowance or according to the beneficiary's needs) then the income transaction would be simply Income:Dividends->Assets:Cash and you'd only need the Liabilities:Unpaid Distributions account at the end of your fiscal year when you send the check after the end of the year but want to reflect it in the prior year's tax return.

Regards,
John Ralls