[GNC] GNC Equity and Retained Earnings not tracking together?

[David Cousens]

Brian,Michael

I did misunderstand Brian's original question.

My comment below is a general accounting perspective based on general
accounting theory for corporations ( Financial Accounting Horngren etal 5 th
edition, Accounting Theory  Godfrey etal Wiley Australia  (Accounting Theory
Kahn Wiley US looks to be a US equivalent) ) and may be affected by specific
corporation's law requirements/arrangements specific to the jurisdiction. 

The general accounting rationale is to keep clearly separate:

  a contributed capital -  raised from financing transactions;
  b earned capital - derived from profit making activities.

The earned capital consists of the unappropriated profits or retained
earnings. 
Retained earnings may then be appropriated for specific purposes. Retained
earnings does not represent a particular asset. Certain transaction types
will effecct transfers between earned capital and contributed capital (share
dividends, reinvestment etc.).

If the corporation wants to appropriate money from retained earnings for
specific purposes, it will normally establish reserve accounts which would
normally appear immediately above retained earnings in the balance sheet 
(this may depend on local practice). Reserves are generally established for
purposes like reinvestment, dividends etc.  To establish the reserve
accounts . Retained Earnings is debited and the reserve account is credited.
Unused reserves are usually returned to the Retained Earnings account.  When
money is used to increase long term assets for example there would normally
be a credit to a bank account and a debit to the appropriate long term asset
account and a corresponding debit to the appropriate reserve account and a
credit to the share capital account. That is money has been transferred from
the earned capital of the corporation into the share capital by this
transaction.  Similarly if there is a reserve account for Dividends Payable,
money is allocated by a debit to Retained Earnings and a credit to the
reserve Dividends Payable account  and Dividends Payable will be debited and
Share capital credited (again a transfer of earned capital to contributed
capital) when the dividend is paid along with the corresponding credit to a
bank account and debit to share capital (probably  Brian's Shareholder
Distributions which is a contra account) representing the actual payment to
the share holder.

GnuCash where it is  not using the close books and explicit accounting above
should be calculating any reductions to Retained Earnings from the
Shareholder Distributions as Brian implied. Whether this can be done
generally enough in the reports to fit all user situations is the real
question?

David Cousens

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David Cousens
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