[GNC] Handling of Equity and Retained Earnings

[Michael or Penny Novack]

On 1/16/2020 7:13 PM, David Cousens wrote:

>
> A Retained earnings account will be created under Equity and at the start of
> a new book/file it is appropriate that its value is zero until transactions
> from the Asset and Liability accounts to the Income and Expense accounts
> have been made.
>
I'm going to jump in here again, with the understanding that I lack 
"qualifications" to give accounting advice.

There are TWO (somewhat different meanings/usages for "retained 
earnings" AND when accounting for a corporation, you may need an 
explicit "retained earnings" account. For most of us, it just reflects 
the NET of the income and expense accounts since the last time a "close 
the books" operation was run.

I do not think we should be advising on "accounting for a corporation" 
on this list. Not regular corporations certainly and probably not pass 
through corporations or even partnerships << usually necessary to be 
able to tell those receiving distributions OR NOT receiving, retained*,  
what the "implied taxable amounts" are >>

Michael D Novack

* for a regular corp, retained, not distributed as dividends, remains 
available for other purposes. For a regular corporation, these are after 
tax. But dividends paid out of profits are different than ones that 
reflect return of capital. For a pass through, all profits are taxable 
to the shareholders/partners whether distributed or retained by the 
entity. A regular corporation transfers form "retained earnings" to 
"dividend liability" when the directors declare the dividend << when 
paid, reduce that "dividend liability".

But PLEASE -- I am not a registered accountant nor have I ever kept 
books for a for profit corporation, pass through, or partnership << 
entirely different for a non-profit >> I simply didn't skip over those 
chapters of accounting texts, curious.