[GNC] Where would enter revenue that could be paid to shareholders?

[davidcousens49 at gmail.com]

Dave,

With the usual disclaimer that this should not be considered accounting advice
the following is a possible treatment. 

In a conventional accounting treatment at the end of the year the temporary
income and Expense accounts are normally closed by transferring their balances
to equity. The manual procedure is generally to close the income and revenue
accounts to an Income Summary account which gives the gross profit for the
busines after performing any adjustments necessary to correct the accounts
(sometimes some expenses and income may be from a following year for things like
prepaid expenses etc).
  
The balance of the Income Summary account will be a credit balance for a profit
and a debit balance for a loss. This is in turn transferred to a Retained
Earnings account under Equity. (If the owners of the business in the case of a
sole operator/partnership have drawn any funds out of the business during the
year, the balance of any Drawings account would also be transferred to the
Retained Earnings account at this point.

A company will normally have an Equity:Share Capital account with appropriate
subaccounts if there are different classes of shares, An Equity: Retained
Earnings Accout and Equity: Reserves accounts. 

When the company directors have declared a dividend, the Retained Earnings
account is debited for the total amount of the dividends to be paid out and that
amount is then credited to a current account Liability:Dividends Payable
account.

When the dividends are paid to the shareholders The company Asset:Bank Account
will be credited for the amount of the dividend payment and the
Liability:Dividends Payable will be correspondingly debited for the amount paid
to the shareholder.

The above is only a general outline and there are the complications of different
share classes, preference shares, share splits, buy backs etc on top of the
above and any jurisdictional rules regulations the company is subject to.

Dividends, depending on the juridictions tax system, may be paid out of pre-tax
earnings or post tax Earnings and may or may not confer tax offsets for the
shareholder which require appropriate treatment.

David Cousens


On Sun, 2021-12-05 at 11:39 +0000, Dr. David Kirkby wrote:
> If a company can potentially pay out X pounds, but has not paid out any at
> all, where would that be entered in GnuCash? I assume its a liability, but
> should it be entered into liabilities, or perhaps retained earnings?
> 
> Dr David Kirkby Ph.D C.Eng MIET
> Email: drkirkby at kirkbymicrowave.co.uk Web:
> https://www.kirkbymicrowave.co.uk/
> Kirkby Microwave Ltd (Tel 01621-680100 / +44 1621-680100)
> Stokes Hall Lodge, Burnham Rd, Chelmsford, Essex, CM3 6DT.
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