[GNC] [GNC-dev] Recording dividend payoffs

[Christopher Lam]

I suspect there's vocabulary issue here.

Justin are you talking about Dividends whereby the business owner (with
shareholders) sends monies to shareholders? I don't know how to book these
transactions. Asset:Bank -> Expenses:Dividends?

Or are we talking about Dividends whereby the individual (has shares in
companies) receives money from these shares? This one is Income:Dividends
to Asset:Bank and gets wound up into Retained Earnings after closing books.

Or a combined one whereby the Company Owner (has full, or partial shares in
company) decides to issue dividends, and pays himself and other
shareholders a dividend? (Asset:Business:Bank -> Asset:Personal:Bank) ???

On Tue, 16 Apr 2019 at 22:26, Justin Mathew <mjustin at protonmail.com> wrote:

> John, Do you even realize what you've typed?
>
> > Sorry, you're wrong on both points.
>
> Apparently you're also implying that not just me, but the whole accounting
> ecosystem is wrong because we all believe that Retained Earnings is net
> income minus dividend payments.
>
> > GnuCash doesn't care about the dividend payment, it's up to the
> user--i.e. you--to set up your Accounts correctly and make the dividend
> payments with the right account.
>
> It has to care, else don't call it an accounting software, period! Do you
> not realize that there is no 'right account' in GnuCash for dividends? If
> you put is as expense that's technically wrong, if you put it as equity,
> the Retained Earnings calculations ignores it. Isn't that the whole gist of
> my emails - that we make one or find a better solution? Brainstorm, discuss
> potential solutions, see what we can do for next release to fix it instead
> of being defensive?
>
> The two explanations you gave doesn't fix the issue -
>
> a) You asked to close the books which will put the money into Retained
> Earnings. The problem with this solution is that it forces the user to
> close the books when he doesn't have to. Even if you ignore that, the
> solution doesn't take care of dividends. Dividends don't get adjusted to
> Retained Earnings because you still define Retained Earnings as total
> income - total expenses at a particular date. Well, that equation gives you
> total net income, not retained earnings. Simple accounting formulas. Maybe
> the naming system is wrong as mentioned by Frank.
>
> b) You asked to make an expense statement to record dividends. Well,
> that's the workaround we all are using at the moment, and everyone who
> replied to this thread did say that. I am merely suggesting that we find a
> proper solution to this because using an expense account for dividends is
> just technically wrong.
>
> >If you need an accounting program that handles it automagically, GnuCash
> isn't the right solution for you.
>
> I don't need an automatic thing! No one is talking about handling
> dividends automatically. Dividends can be arbitrary and this very nature
> makes it impossible to automate it. I am talking about the right tools
> (accounts) to record dividends when they are declared.
>
> To metaphorize, We need a hammer to hammer a nail and you're saying,
> "Sorry, that's just unnecessary, we have an axe, hold the head sideways and
> hit the nail with that. It should work!".
>
> I am just wondering what others in the list thinks of this issue. Should
> we work on it, or just let it be?
>
>
> -
> Regards,
> Justin Mathew
> mjustin at protonmail.com
>
> Sent with ProtonMail Secure Email.
>
>
> -
> Regards,
> Justin Mathew
> mjustin at protonmail.com
>
> Sent with ProtonMail Secure Email.
>
> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> On Wednesday, April 17, 2019 3:06 AM, John Ralls <jralls at ceridwen.us>
> wrote:
>
> > Justin,
> >
> > Sorry, you're wrong on both points. GnuCash doesn't care about the
> dividend payment, it's up to the user--i.e. you--to set up your Accounts
> correctly and make the dividend payments with the right account. I've
> explained twice now how to do that, I won't again. If you need an
> accounting program that handles it automagically, GnuCash isn't the right
> solution for you.
> >
> > Regards,
> > John Ralls
> >
> > > On Apr 16, 2019, at 12:30 PM, Justin Mathew mjustin at protonmail.com
> wrote:
> > > John,
> > >
> > > > It's not a workaround, it's a choice. Either you close your books or
> you don't. If you do then you close to a Retained Earnings account and all
> is good. If you don't then GnuCash calculates your retained earnings for
> you and all is good. At present if you mix the two then you get two
> "Retained Earnings" lines in your report unless you name the account
> something else. So don't mix them.
> > >
> > > I was referring to the use of 'Expense' accounts for dividend payments
> as workaround. Not the choice of closing or continuing the books which is
> of course a choice.
> > > Anyway, I have spent enough time putting my point across. Let me
> summarize what Frank and I meant in two bullet points.
> > > a) 'Retained Earnings' is your net income minus your dividends paid in
> general accounting terms. In GnuCash it means something else.
> > > b) GnuCash doesn't handle the dividend payment the technically correct
> way. Dividends should decrease the equity and gets balanced out.
> > > Only if b is fixed, can a be fixed. And no, this is not just pedantry!
> I wish you can see the seriousness in this issue.
> > > If it's a bug, users can wait for the fix in the next release, but if
> it's a flaw in design which isn't acknowledged, there is little that users
> can do.
> > > Thank you all. I know you'll do what's good for the software.
> > >
> > > -
> > >
> > > Regards,
> > > Justin Mathew
> > > mjustin at protonmail.com
> > > Sent with ProtonMail Secure Email.
> > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > On Wednesday, April 17, 2019 12:28 AM, John Ralls jralls at ceridwen.us
> wrote:
> > >
> > > > Justin,
> > > > It's not a workaround, it's a choice. Either you close your books or
> you don't. If you do then you close to a Retained Earnings account and all
> is good. If you don't then GnuCash calculates your retained earnings for
> you and all is good. At present if you mix the two then you get two
> "Retained Earnings" lines in your report unless you name the account
> something else. So don't mix them.
> > > > If someone was so inclined GnuCash could handle a middle way to
> combine the calculated retained earnings with a designated (by report
> option, I suppose) retained earnings account and report it on a single
> line, but frankly I don't see much reason for that beyond pedantry.
> > > > Regards,
> > > > John Ralls
> > > >
> > > > > On Apr 16, 2019, at 9:31 AM, Justin Mathew mjustin at protonmail.com
> wrote:
> > > > > From what I have seen on GnuCash, we can generate profit loss
> statement for a fiscal year without closing the books. And therefore we can
> determine the dividends to be paid without closing the books. And anytime
> you generate a balance sheet, 'Retained Earnings' are mentioned. So we
> don't need to close any books to generate these figures.
> > > > > If you calculate 'Retained Earnings' as your net income minus
> dividends for that fiscal year, don't we credit the 'Retained Earnings'
> account without closing the books?
> > > > >
> > > > > > On the other hand, if you want to never close your books just
> create an expense account for dividends and exclude it from the various
> Expense reports and the Income Statement (aka Profit & Loss) report. That's
> not formally correct, but the result is the same.
> > > > >
> > > > > I know this workaround, it was discussed in the user mailing list
> itself. The reason of this thread is to find a fix to this issue at least
> for the next release.
> > > > > If we bring in a Dividend type account under Equity we can debit
> dividend declarations to this account. We don't have to credit this account
> by the way. The account will be in minus with red font as in current
> version. The balance in this account will be transferred to net account
> resulting in the proper 'Retained Earnings'.
> > > > > Eg, total net income = $50,000
> > > > > Dividends are declared = $25,000 to be paid to shareholders
> > > > > Dividend Declared account in Equity will show -$25,000 since it is
> only debited.
> > > > > Retained Earnings = Net income + Dividend Declared = 50000+
> (-20000) = 30000
> > > > > When you calculate 'Retained Earnings' the way it should be
> calculated, it gives the accurate number whether the books are closed or
> not.
> > > > > GnuCash has to work accurately with all businesses whether small
> or big, instead of using workarounds.
> > > > >
> > > > > -
> > > > >
> > > > > Regards,
> > > > > Justin Mathew
> > > > > mjustin at protonmail.com
> > > > > Sent with ProtonMail Secure Email.
> > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > On Tuesday, April 16, 2019 8:13 PM, John Ralls jralls at ceridwen.us
> wrote:
> > > > >
> > > > > > The Retained Earnings part of the Balance Sheet report was
> written with that in mind.
> > > > > > The automatic calculation of retained earnings in the Balance
> Sheet report nets out the income and expense accounts; if there's a
> Retained Earnings account it will get reported too. Since the way to credit
> Retained Earnings (an Equity account) is to close the books, debiting all
> of the income and expense accounts by their balances and crediting Retained
> Earnings. Now income and expense are 0 and the calculated Retained Earnings
> line won't appear. You can treat its appearance as a reminder that you
> haven't closed the books yet.
> > > > > > On the other hand, if you want to never close your books just
> create an expense account for dividends and exclude it from the various
> Expense reports and the Income Statement (aka Profit & Loss) report. That's
> not formally correct, but the result is the same.
> > > > > > Regards,
> > > > > > John Ralls
> > > > > >
> > > > > > > On Apr 16, 2019, at 7:22 AM, Christopher Lam
> christopher.lck at gmail.com wrote:
> > > > > > > Oops. My mistake: The "Retained Earnings" part in GnuCash's
> Balance-sheet
> > > > > > > has not been written with that in mind by the original report
> writers.
> > > > > > > Amendments to reports are possible but please submit an
> enhancement in
> > > > > > > bugzilla.
> > > > > > > Ideally with an suitable chart of accounts, with some sample
> real-life
> > > > > > > transactions.
> > > > > > > On Tue, 16 Apr 2019 at 14:04, Justin Mathew
> mjustin at protonmail.com wrote:
> > > > > > >
> > > > > > > > Christopher,
> > > > > > > >
> > > > > > > > > The "Retained Earnings" part of the Balance Sheet has
> nothing to do with
> > > > > > > > > dividends.
> > > > > > > > > IIUC on the balance sheet date X, the retained earnings
> simply means the
> > > > > > > > > total income up to date X, minus total expenses up to date
> X.
> > > > > > > >
> > > > > > > > Don't get me wrong, the 'retained earnings' anywhere in
> accounting (not
> > > > > > > > just in the balance sheet) should have everything to do with
> dividends.
> > > > > > > > It's the accounting definition that 'Retained earnings' is
> the business'
> > > > > > > > net income - cash/stock dividends.
> > > > > > > > The definition of 'total income minus total expenses' works
> only for sole
> > > > > > > > proprietorships where the business isn't a legal entity in
> it's own right.
> > > > > > > > A registered business, however small it is will have at
> least one
> > > > > > > > shareholder. Most small businesses will have more than one
> from what I have
> > > > > > > > seen.
> > > > > > > >
> > > > > > > > > From your description of 'owning a company with shares' /
> 'selling
> > > > > > > > > shares of company' / 'issuing dividends' I honestly have
> no idea how the
> > > > > > > > > books should look like, nor which chart of accounts should
> apply, nor
> > > > > > > > > whether the GnuCash reports are appropriate to produce
> useful reports.
> > > > > > > >
> > > > > > > > Oh yes, GnuCash should be able fit in all business, because
> they all
> > > > > > > > follow the same accounting principles. All we need to do is
> to calculate
> > > > > > > > 'Retained Earnings' as per the standard accounting formula -
> it should
> > > > > > > > account for dividends paid.
> > > > > > > > Understanding which transactions are dividends to account
> for is a problem.
> > > > > > > > Dividends are a decrease in equity and can't be recorded in
> an 'Expense'
> > > > > > > > type account (although that's the current workaround and
> technically
> > > > > > > > wrong). Therefore what I suggest is to create a dividend
> account type under
> > > > > > > > equity (equity currently has only 1 type of account) which
> can be used to
> > > > > > > > record dividend declarations. The value of this account can
> then be
> > > > > > > > adjusted from total income. This will give us the real
> 'Retained Earnings'.
> > > > > > > > Note that: The corresponding journal entry for recording in
> dividend
> > > > > > > > declaration account is 'dividend payable' (which is a
> liability account
> > > > > > > > created by user). To record a dividend paid, a second record
> is created in
> > > > > > > > 'dividend payable' against the journal 'current account' or
> 'cash account'.
> > > > > > > >
> > > > > > > > -
> > > > > > > >
> > > > > > > > Regards,
> > > > > > > > Justin Mathew
> > > > > > > > mjustin at protonmail.com
> > > > > > > > Sent with ProtonMail Secure Email.
> > > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > > > > On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
> > > > > > > > christopher.lck at gmail.com> wrote:
> > > > > > > >
> > > > > > > > > The "Retained Earnings" part of the Balance Sheet has
> nothing to do with
> > > > > > > > > dividends.
> > > > > > > > > IIUC on the balance sheet date X, the retained earnings
> simply means the
> > > > > > > > > total income up to date X, minus total expenses up to date
> X.
> > > > > > > > > If the books were 'closed' on date X, the income&expenses
> would be
> > > > > > > > > zeroed out to Equity:Closing Transactions. This is what
> Retained Earnings
> > > > > > > > > mean to reflect. They suit most sole traders / small
> businesses very well.
> > > > > > > > > From your description of 'owning a company with shares' /
> 'selling
> > > > > > > > > shares of company' / 'issuing dividends' I honestly have
> no idea how the
> > > > > > > > > books should look like, nor which chart of accounts should
> apply, nor
> > > > > > > > > whether the GnuCash reports are appropriate to produce
> useful reports.
> > > > > > > > > On Tue, 16 Apr 2019 at 12:39, Justin Mathew via
> gnucash-user <
> > > > > > > > > gnucash-user at gnucash.org> wrote:
> > > > > > > > >
> > > > > > > > > > Maf,
> > > > > > > > > >
> > > > > > > > > > > you should keep replies on-list, others can contribute
> and maybe in
> > > > > > > > > > > the future
> > > > > > > > >
> > > > > > > > > > > the thread can save a question being asked in the
> first place....
> > > > > > > > > > > "reply All"
> > > > > > > > >
> > > > > > > > > > > in your email client is a good way.
> > > > > > > > > >
> > > > > > > > > > Opps, I had read about it, but missed it in the heat of
> replying.
> > > > > > > > > > Will keep that mind henceforth.
> > > > > > > > > >
> > > > > > > > > > > Closing the books was important in paper days, not so
> much with
> > > > > > > > > > > digital
> > > > > > > > >
> > > > > > > > > > > accounts where the software can do everything quickly
> & repeatably.,
> > > > > > > > > > > IMHO
> > > > > > > > >
> > > > > > > > > > > closing books isn't really needed any more, as long as
> you keep
> > > > > > > > > > > secure backups
> > > > > > > > >
> > > > > > > > > > > & reports etc for traceablity over the years.
> > > > > > > > > >
> > > > > > > > > > Yes, I read this suggestion in gnu tutorial and concepts
> manual few
> > > > > > > > > > hours ago infact. I am new to accounting to be honest.
> Just learning it
> > > > > > > > > > with a fictitious company and transactions.
> > > > > > > > >
> > > > > > > > > > > I have a part of the expenses tree that is something
> like
> > > > > > > > > > > "non-taxable". so
> > > > > > > > >
> > > > > > > > > > > expenses:non-taxable:dividends or :corporationTax etc.
> Easy to
> > > > > > > > > > > exclude the
> > > > > > > > >
> > > > > > > > > > > whole branch from reports rather than ad-hoc accounts.
> > > > > > > > > >
> > > > > > > > > > And I didn't know that feature existed.
> > > > > > > > > >
> > > > > > > > > > > whereas your earlier reference says that dividends are
> paid from a
> > > > > > > > > > > temproary
> > > > > > > > >
> > > > > > > > > > > equity account that reduces retained earnings. (sounds
> like an
> > > > > > > > > > > "expense"
> > > > > > > > >
> > > > > > > > > > > (english sense, not formal GAAP definition) to me, in
> that both
> > > > > > > > > > > sorts of
> > > > > > > > >
> > > > > > > > > > > payment reduce retained earnings - just that dividends
> are after the
> > > > > > > > > > > profit &
> > > > > > > > >
> > > > > > > > > > > tax calcs are done)
> > > > > > > > > >
> > > > > > > > > > That's a good way to think. And I guess, this is the
> only workaround
> > > > > > > > > > at the moment. It does 'sounds' like expense but I am
> not too sure to say
> > > > > > > > > > that it 'is' expense.
> > > > > > > > >
> > > > > > > > > > I don't know if I can call this a bug; but this isn't
> the technically
> > > > > > > > > > correct behavior. GnuCash is intended to be used in
> accounting spheres
> > > > > > > > > > regulated by different govts and laws. And because of
> this, GnuCash should
> > > > > > > > > > treat dividend payoffs in the standardized and
> technically correct way ie,
> > > > > > > > > > a dividend declaration account that is a part of
> 'equity' which reduces the
> > > > > > > > > > 'retained earnings' in reports.
> > > > > > > > >
> > > > > > > > > > Anyway, let the more experienced development team make a
> call on this.
> > > > > > > > > > I shall raise this with the dev team as well. I am alao
> copying this to
> > > > > > > > > > gnucash-devel at gnucash.org. I am not a part of the dev
> mailing lists, but
> > > > > > > > > > I guess this will reach them.
> > > > > > > > >
> > > > > > > > > > -
> > > > > > > > > >
> > > > > > > > > > Regards,
> > > > > > > > > > Justin Mathew
> > > > > > > > > > mjustin at protonmail.com
> > > > > > > > > > Sent with ProtonMail Secure Email.
> > > > > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > > > > > > On Tuesday, April 16, 2019 5:34 PM, Maf. King
> maf at chilwell.net
> > > > > > > > > > wrote:
> > > > > > > > >
> > > > > > > > > > > Hi Justin,
> > > > > > > > > > > you should keep replies on-list, others can contribute
> and maybe in
> > > > > > > > > > > the future
> > > > > > > > >
> > > > > > > > > > > the thread can save a question being asked in the
> first place....
> > > > > > > > > > > "reply All"
> > > > > > > > >
> > > > > > > > > > > in your email client is a good way.
> > > > > > > > > > > I think it is a bit of a technical distinction, GAAP
> left over from
> > > > > > > > > > > the days
> > > > > > > > >
> > > > > > > > > > > of paper books. Formally, expenses are a (set of )
> temporary equity
> > > > > > > > > > > account(s) that should be closed (or zeroed) to a
> retained earnings
> > > > > > > > > > > equity
> > > > > > > > >
> > > > > > > > > > > account each year - to give a profit figure.
> > > > > > > > > > > whereas your earlier reference says that dividends are
> paid from a
> > > > > > > > > > > temproary
> > > > > > > > >
> > > > > > > > > > > equity account that reduces retained earnings. (sounds
> like an
> > > > > > > > > > > "expense"
> > > > > > > > >
> > > > > > > > > > > (english sense, not formal GAAP definition) to me, in
> that both
> > > > > > > > > > > sorts of
> > > > > > > > >
> > > > > > > > > > > payment reduce retained earnings - just that dividends
> are after the
> > > > > > > > > > > profit &
> > > > > > > > >
> > > > > > > > > > > tax calcs are done)
> > > > > > > > > > > Closing the books was important in paper days, not so
> much with
> > > > > > > > > > > digital
> > > > > > > > >
> > > > > > > > > > > accounts where the software can do everything quickly
> & repeatably.,
> > > > > > > > > > > IMHO
> > > > > > > > >
> > > > > > > > > > > closing books isn't really needed any more, as long as
> you keep
> > > > > > > > > > > secure backups
> > > > > > > > >
> > > > > > > > > > > & reports etc for traceablity over the years.
> > > > > > > > > > > I have a part of the expenses tree that is something
> like
> > > > > > > > > > > "non-taxable". so
> > > > > > > > >
> > > > > > > > > > > expenses:non-taxable:dividends or :corporationTax etc.
> Easy to
> > > > > > > > > > > exclude the
> > > > > > > > >
> > > > > > > > > > > whole branch from reports rather than ad-hoc accounts.
> > > > > > > > > > > If you think that it is a bug / sub-optimal behaviour,
> by all means
> > > > > > > > > > > submit a
> > > > > > > > >
> > > > > > > > > > > bug report or RFE for the devs to comment on. They
> know far more
> > > > > > > > > > > than me
> > > > > > > > >
> > > > > > > > > > > about the GC architecture decisions etc.
> > > > > > > > > > > Maf.
> > > > > > > > > > > On Tuesday, 16 April 2019 12:21:52 BST Justin Mathew
> wrote:
> > > > > > > > > > >
> > > > > > > > > > > > Yes, that seems to be the only way now. Gnucash
> doesn't complain
> > > > > > > > > > > > if we do
> > > > > > > > >
> > > > > > > > > > > > that way. And you're indeed lucky that you're
> accountant doesn't
> > > > > > > > > > > > complain.
> > > > > > > > >
> > > > > > > > > > > > :)
> > > > > > > > > > > > To think from a larger perspective now, I think
> GnuCash should to
> > > > > > > > > > > > handle
> > > > > > > > >
> > > > > > > > > > > > dividends the right way; primarily because dividend
> isn't
> > > > > > > > > > > > technically an
> > > > > > > > >
> > > > > > > > > > > > expense of the business and marking it as an expense
> will only
> > > > > > > > > > > > create
> > > > > > > > >
> > > > > > > > > > > > issues later (eg, inaccurate certain expense
> reports, wrong
> > > > > > > > > > > > analytics,
> > > > > > > > >
> > > > > > > > > > > > etc.).
> > > > > > > > > > > > If this behavior isn't because of the way we (users)
> are doing it,
> > > > > > > > > > > > shall I
> > > > > > > > >
> > > > > > > > > > > > notify in the development list to consider this as
> an error and
> > > > > > > > > > > > correct it?
> > > > > > > > >
> > > > > > > > > > > > -
> > > > > > > > > > > >
> > > > > > > > > > > > Regards,
> > > > > > > > > > > > Justin Mathew
> > > > > > > > > > > > mjustin at protonmail.com
> > > > > > > > > > > > Sent with ProtonMail Secure Email.
> > > > > > > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > > > > > > > > On Tuesday, April 16, 2019 4:42 PM, Maf. King
> maf at chilwell.net
> > > > > > > > > > > > wrote:
> > > > > > > > >
> > > > > > > > > > > > > Hi Justin,
> > > > > > > > > > > > > while it is contrary to the advice given in the
> link you
> > > > > > > > > > > > > supplied, I've
> > > > > > > > >
> > > > > > > > > > > > > always recorded dividend payouts as an Expense -
> but it is one
> > > > > > > > > > > > > of a
> > > > > > > > >
> > > > > > > > > > > > > handful that are excluded from the corporation tax
> calc, as they
> > > > > > > > > > > > > are
> > > > > > > > >
> > > > > > > > > > > > > declared after tax / from profits.
> > > > > > > > > > > > > My accountant has never complained - UK regs -
> YMMV, of course!
> > > > > > > > > > > > > Maf.
> > > > > > > > > > >
> > > > > > > > > > > --
> > > > > > > > > > > Maf. King
> > > > > > > > > > > PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C
> E591 E8E1 0DE7
> > > > > > > > > > > C542
> > > > > > > > >
> > > > > > > > > > gnucash-user mailing list
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>
>
>