Re: [GNC] GNC Equity and Retained Earnings not tracking together?
On Wed, 11 Mar 2020, 7:42 am David Cousens, wrote: > > Do you know if GnuCash has a flag indicating whether the books have been > closed formally or is just the presence or absence of the closing > transactions used to detect this? > No such flags exist. Only the presence of Closing Transactions. These transactions were formerly (10+ ago) indistinguishable from regular ones, but now have a special flag. They're also internally stored with posted_date bigger than other same dated transactions, to ensure they're displayed "at the end of the day". > ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
Christopher, In another post on this thread in reply to Mike Novak's reply to an earlier post I outlined how Equity:Retained Earnings is generally used in accounting theory and the distinction between contributed capital and earned capital usually made in corporate accounting. The Retained Earnings is the nett *operating* income as you suggest (usually separate from any income from financing activities of a company. This clear separation is perhaps really only essential for corporate structures where there is a legal separation of the liabilities of the shareholder from the liabilities of the business although other business users (partneships, sole traders) may want to provide a similar degree of separation for their management purposes. Do you know if GnuCash has a flag indicating whether the books have been closed formally or is just the presence or absence of the closing transactions used to detect this? If the books are not formally closed then it is obviously difficult to reflect the transfer between earned capital and contributed capital that occurs when dividends are paid or money is reinvested in the business unless the accounts specifically affecting retained earnings can be specified, perhaps in the options? Not all credit splits to equity for example will reflect such transfers as there are likely to be transactions involving the share capital (splitting, buy backs etc) which don't affect Retained Earnings. David - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
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 . - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
Christopher, my error. If you re-read the original post the transaction was posted Assets:Cash and Equity:Shareholder Distribution. Liability was not in the equation. Basically, your comments confirm that the GNUCash automatic calculation is rudimentary and to get a true "retained earnings" that one must "close" books, or consider the Balance Sheet report with a correction needed for the "Retained Earnings" line is involved. My previous statement should have read > > Christopher, then I believe you are saying to get a proper "retained > > earnings", which recognizes the reduction of Assets:Cash and > > increase to EQUITY:Shareholder distribution, that one > > would need to properly close the books by moving income and expense to a > > EQUITY:Retained Earnings sub-account? While that is disappointing, I can properly calculated true "retained earnings" from the Balance Sheet report and simply need to add the steps of "saving" a "open" version prior to closing the books, then closing income and expense to "EQUITY:Retained earnings" and "saving" that gnucash version with a tag of "closed" in the file name. Then there will be available a non-close version to go back and make corrections if errors are found in the future. Extra steps but workable. Thanks for the help. -- On Tue, 10 Mar 2020 16:33:12 + Christopher Lam wrote: > The right answer will be to submit the Transaction Report to the > accountant, have him/her calculate the Retained Earnings and > Shareholder Distribution for you, then you pay your shareholders via > Assets:Bank/Cash -> Liability:Shareholder (and later > Liability:Shareholder -> Expenses:Shareholder Dividends I guess?) > > I also think you'd close the books to an Equity:Retained Earnings > account rather than Liability:Retained Earnings. I think untold > surprises will arise if closing books to Liability. > > IMHO Balance Sheet's Retained Earnings seems designed to be Net Income > https://en.wikipedia.org/wiki/Net_income > > That's all I know. > > On Tue, 10 Mar 2020 at 15:29, Brian via gnucash-user < > gnucash-user@gnucash.org> wrote: > > > > On Tue, 10 Mar 2020 at 01:02, Brian via gnucash-user < > > > gnucash-user@gnucash.org> wrote: > > > > > > > I'm wondering if GNUCash is actually calculating RETAINED > > > > EARNINGS properly. Because after issuing a distribution to > > > > shareholder the Retaining Earning calculation increased by Net > > > > Income but did not decrease by Asset:Cash which was debited and > > > > credited to Equity:Shareholder Distribution. > > > > > > > > > > The calculation of Retained Earnings and Unrealized Gains in the > > > Balance Sheet is rather primitive, and has been as such since > > > nearly forever. > > > > > > Retained Earnings = sum total of income less expenses at the > > > balance-sheet date. > > > Unrealized Gains = sum total of (asset-liability) value, minus sum > > > total of (asset-liability) cost. > > > > Christopher, then I believe you are saying to get a proper "retained > > earnings", which recognizes the reduction of Assets:Cash and > > increase to Liability:Shareholder distribution, that one would need > > to properly close the books by moving income and expense to a > > Liability:Retained Earnings sub-account? > > > > > > > > > > > > ___ > > gnucash-user mailing list > > gnucash-user@gnucash.org > > To update your subscription preferences or to unsubscribe: > > https://lists.gnucash.org/mailman/listinfo/gnucash-user > > If you are using Nabble or Gmane, please see > > https://wiki.gnucash.org/wiki/Mailing_Lists for more information. > > - > > Please remember to CC this list on all your replies. > > You can do this by using Reply-To-List or Reply-All. > > ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
Just for the record, That should be a reduction of cash *and* a reduction of ’Shareholder distribution’, not an increase. You aren’t increasing your liability by paying it down. Dr. Liability:Shareholder Distribution Cr. Cash The liability is increased via a transaction with Retained Earnings. Dr. Equity:Retained Earnings Cr. Liability:Shareholder Distribution Research Dividends transactions for corporate accounting. You’ll find the appropriate accounts needed and how to structure the transactions. (better yet, speak to a local CPA!) I think the general term for your ’Shareholder Distribution’ is ‘Dividends Payable’ or ‘Dividends Declared’ (which might be a separate account) Some also simply make those distribution accounts as contra-equity accounts under Retained Earnings or Shareholder’s equity and don’t involve liability accounts at all. It depends on the nature of the payment. You can have an actual Retained Earnings account along with not closing the books, but you may wish instead to close the books. Otherwise, you’ll have two Retained Earnings lines on your balance sheet (one as net-income, one as actual account) which will require you to export to spreadsheet, combine them, then print. An improvement to the current report would be to add the balance of the real account to the net-income calculation. Regards, Adrien > On Mar 10, 2020 w11d70, at 10:27 AM, Brian via gnucash-user > wrote: > >> On Tue, 10 Mar 2020 at 01:02, Brian via gnucash-user < >> gnucash-user@gnucash.org> wrote: >> >>> I'm wondering if GNUCash is actually calculating RETAINED EARNINGS >>> properly. Because after issuing a distribution to shareholder the >>> Retaining Earning calculation increased by Net Income but did not >>> decrease by Asset:Cash which was debited and credited to >>> Equity:Shareholder Distribution. >>> >> >> The calculation of Retained Earnings and Unrealized Gains in the >> Balance Sheet is rather primitive, and has been as such since nearly >> forever. >> >> Retained Earnings = sum total of income less expenses at the >> balance-sheet date. >> Unrealized Gains = sum total of (asset-liability) value, minus sum >> total of (asset-liability) cost. > > Christopher, then I believe you are saying to get a proper "retained > earnings", which recognizes the reduction of Assets:Cash and increase to > Liability:Shareholder distribution, that one would need to properly > close the books by moving income and expense to a Liability:Retained > Earnings sub-account? ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
The right answer will be to submit the Transaction Report to the accountant, have him/her calculate the Retained Earnings and Shareholder Distribution for you, then you pay your shareholders via Assets:Bank/Cash -> Liability:Shareholder (and later Liability:Shareholder -> Expenses:Shareholder Dividends I guess?) I also think you'd close the books to an Equity:Retained Earnings account rather than Liability:Retained Earnings. I think untold surprises will arise if closing books to Liability. IMHO Balance Sheet's Retained Earnings seems designed to be Net Income https://en.wikipedia.org/wiki/Net_income That's all I know. On Tue, 10 Mar 2020 at 15:29, Brian via gnucash-user < gnucash-user@gnucash.org> wrote: > > On Tue, 10 Mar 2020 at 01:02, Brian via gnucash-user < > > gnucash-user@gnucash.org> wrote: > > > > > I'm wondering if GNUCash is actually calculating RETAINED EARNINGS > > > properly. Because after issuing a distribution to shareholder the > > > Retaining Earning calculation increased by Net Income but did not > > > decrease by Asset:Cash which was debited and credited to > > > Equity:Shareholder Distribution. > > > > > > > The calculation of Retained Earnings and Unrealized Gains in the > > Balance Sheet is rather primitive, and has been as such since nearly > > forever. > > > > Retained Earnings = sum total of income less expenses at the > > balance-sheet date. > > Unrealized Gains = sum total of (asset-liability) value, minus sum > > total of (asset-liability) cost. > > Christopher, then I believe you are saying to get a proper "retained > earnings", which recognizes the reduction of Assets:Cash and increase to > Liability:Shareholder distribution, that one would need to properly > close the books by moving income and expense to a Liability:Retained > Earnings sub-account? > > > > > > ___ > gnucash-user mailing list > gnucash-user@gnucash.org > To update your subscription preferences or to unsubscribe: > https://lists.gnucash.org/mailman/listinfo/gnucash-user > If you are using Nabble or Gmane, please see > https://wiki.gnucash.org/wiki/Mailing_Lists for more information. > - > Please remember to CC this list on all your replies. > You can do this by using Reply-To-List or Reply-All. > ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
> On Tue, 10 Mar 2020 at 01:02, Brian via gnucash-user < > gnucash-user@gnucash.org> wrote: > > > I'm wondering if GNUCash is actually calculating RETAINED EARNINGS > > properly. Because after issuing a distribution to shareholder the > > Retaining Earning calculation increased by Net Income but did not > > decrease by Asset:Cash which was debited and credited to > > Equity:Shareholder Distribution. > > > > The calculation of Retained Earnings and Unrealized Gains in the > Balance Sheet is rather primitive, and has been as such since nearly > forever. > > Retained Earnings = sum total of income less expenses at the > balance-sheet date. > Unrealized Gains = sum total of (asset-liability) value, minus sum > total of (asset-liability) cost. Christopher, then I believe you are saying to get a proper "retained earnings", which recognizes the reduction of Assets:Cash and increase to Liability:Shareholder distribution, that one would need to properly close the books by moving income and expense to a Liability:Retained Earnings sub-account? ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
This question MAY require delving into "accounting for corporations when using gnucash". It may be that for corporations, the usual process of not closing the books and having gnucash showing a VIRTUAL account "retained earnings" isn't going to work well for corporations << where dividends paid out of earnings and dividends representing a return of capital are treated differently >> It has been far too many years (decades) since I looked at an "accounting for corporations" text. We need an accountant here, then first describe what is needed were it being done the old fashioned way (pen and ink on paper) and THEN seeing how we get gnucash to model that. Michael D Novack On 3/9/2020 9:44 PM, David Cousens wrote: Brian, Brian the Retained Earnings is a component of the total Equity of the business that records what the operation of the business has contributed to the Equity. When a distribution is paid it is paid out of Equity and if it is debited to the Shareholder Distributions and credited to the Asset:Bank account then it has decreased the Equity appropriately. If you were to also debit it from Equity:Retained Earnings what is the other account for the debit side of the transaction? You will have decreased the equity twice for the one distribution to the shareholders and Retained Earnings will no longer reflect the operational contribution to the Equity of the business. The shareholder distribution is not part of the operational aspect of the business but a part of its capital/financing structure. David Cousens - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All. -- There is no possibility of social justice on a dead planet except the equality of the grave. ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
On Tue, 10 Mar 2020 at 01:02, Brian via gnucash-user < gnucash-user@gnucash.org> wrote: > I'm wondering if GNUCash is actually calculating RETAINED EARNINGS > properly. Because after issuing a distribution to shareholder the > Retaining Earning calculation increased by Net Income but did not > decrease by Asset:Cash which was debited and credited to > Equity:Shareholder Distribution. > The calculation of Retained Earnings and Unrealized Gains in the Balance Sheet is rather primitive, and has been as such since nearly forever. Retained Earnings = sum total of income less expenses at the balance-sheet date. Unrealized Gains = sum total of (asset-liability) value, minus sum total of (asset-liability) cost. ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] GNC Equity and Retained Earnings not tracking together?
Brian, Brian the Retained Earnings is a component of the total Equity of the business that records what the operation of the business has contributed to the Equity. When a distribution is paid it is paid out of Equity and if it is debited to the Shareholder Distributions and credited to the Asset:Bank account then it has decreased the Equity appropriately. If you were to also debit it from Equity:Retained Earnings what is the other account for the debit side of the transaction? You will have decreased the equity twice for the one distribution to the shareholders and Retained Earnings will no longer reflect the operational contribution to the Equity of the business. The shareholder distribution is not part of the operational aspect of the business but a part of its capital/financing structure. David Cousens - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
[GNC] GNC Equity and Retained Earnings not tracking together?
I'm wondering if GNUCash is actually calculating RETAINED EARNINGS properly. Because after issuing a distribution to shareholder the Retaining Earning calculation increased by Net Income but did not decrease by Asset:Cash which was debited and credited to Equity:Shareholder Distribution. I have never run a "close" on the books. This is on GNUCash 3.8. Equity has four accounts: Shareholder Distributions, Shareholder Contributions. Capital Stock, and AAA-( Opening balance to GNUCash from previous Quckbooks). This is for a small s-corp business and has standard Asset, Liability, Income and Expense accounts. I understand that the Equity:Shareholder Distribution appears on the Balance Sheet as a negative number. But what I'm confused about is that Retained Earnings line only increases, by the yearly Net Income, and didn't decrease by the Shareholder Distribution at the end of the year. While Total Equity did decrease to the correct number. I did look at a Balance Sheet report dated 3/1/2020, since Shareholder distribution was made 12/30/2019. I would expect that when Assets decrease due to equity being removed (i.e. Shareholder Distribution) that the Retained Earnings should also decrease. Is my understanding of retained earnings wrong? Did I do something wrong only entering the one transaction above? Or, why is retained earnings on the Balance Sheet not decreasing while equity is properly decreasing following the Assets-Liability=Equity=(income-expense) formula? Is there a corporation setup or alternate report for properly showing retained earnings at a point in time? Thanks for the advice. ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
