[GNC] Recording dividend payoffs

[Adrien Monteleone]

I’d suspect, more likely than not, if I were running a business that needed such accounting, I too would close the books each year. It would be nice if GC handled Equity accounts without having to do so, but as-is, the software is certainly usable for a more formal business case.

Regards,
Adrien

> On Apr 19, 2019, at 6:35 AM, David Cousens <davidcousens at bigpond.com> wrote:
> 
> Hi Justin
> 
> I certainly prefer the approach of declaring dividends as a contra acunt to
> Retained Earnings and/or debiting it directly to Retained Earnings but it
> will require closure of the books to provide retained earnings to handle it
> properly.
> 
> That said there is nothing technically wrong in accounting terms with having
> a dividend expense account which is closed to Retained Earnings. The act of
> closing it to the Retained Earnings subtracts the dividend from Equity in
> this case. The only difficulty is that the procedure is not as clear in
> making it obvious that dividends are paid out of profits.
> 
> The problem with how the reports deal with Retained Earnings is another
> issue. Retained Earnings is a permanent account of a business. The net
> income or profit/loss is only a periodic increment or decrement in that
> account value not the value of Retained Earnings itself. GnuCash for the
> reporting must calculate Retained Earnings as Income - Expenses calculated
> from when the since books are opened. If the dividends are accounted for
> with an expense account, then they have been deducted from Retained Earnings
> and hence from Equity. However they will not appear as a line item unless
> listed in the expenses. Depending on tax rules they may or may not be a
> deductible business expense, generally not in most jurisdictions as in most
> cases where dividends are paid out of after tax profits. Specific
> jurisdictional rules could however prevent using expense accounts to record
> dividends.
> 
> If I was running a business and using GnuCash,  I would be closing the
> Income and Expense accounts to Retained Earnings using the closing procedure
> to zero out the temporary accounts. That way the closing transactions are
> explicit and as long as the Balance Sheet is calculated at a date after the
> transactions for the dividends have been applied they should be reported in
> the balance sheet. Using the contra account should allow you to list them
> explicitly in a Balance Sheet report if you need to.
> 
> David Cousens