Re: [GNC] [GNC-dev] Recording dividend payoffs
John, That was a punch line, and a very good one. I respect your experience and the time you have/are spending with GnuCash support (and perhaps even development). But just because I am new to accounting and you've spend a long time in accounting along with managing the company that pay dividends, the logic behind my suggestion doesn't crumble. First, when you close your books and credit Retained Earnings account, you can always debit the dividends from this account. Things are fine here. I never disputed this. Except that this way requires you to close the books. I wanted things to work fine even when books aren't close (for very good reasons), and hence that suggestion. From this thread alone, I realize 3 or 4 people pay off dividends using Expense:Dividends without closing the books. I also understand that the formal way to pay dividends and record them is to close the books and debit Retained Earnings. Never disputed it but I'll dispute this, >The claim that it violates the formal rules fails because it's only required >when one doesn't follow the formal rules and close Income and Expense to >Retained Earnings: In for a penny, in for a pound. Yes, I am still a beginner. But as far as I know and have read, it is a widely accepted practice among accountants and corporations to use a temporary account (like Equity:Dividend Declared) to record dividends. So then, why not use Expense:Dividends as a temporary account instead? Again, a variety of reasons. Literally misleading, technically incorrect, confusing for an auditor, confusing for a new accountant, legally incorrect etc. And that's the reason, I put forward that suggestion (which was subject to discussions and replacement for better solutions) so that those who don't want to close the books can record dividend pay offs the more right way than Expense:Dividends. Another reason - GnuCash doesn't require people to close books. And hence as a product, if there is a legitimate or widely accepted way to carry out functions (that require to close the books) without closing the books, GnuCash should have it. And by no means is Expense:Dividends a legitimate way for reasons stated earlier. The options are there on the table. You guys decide. As I mentioned earlier, lot of people use Expense:Dividends without closing the books. All the more reasons to incorporate something to make such users do tasks the more right way. As for me I would close the books to credit Retained Earnings than use Expense:Dividends. Anyway, if I had misconducted myself, I'd like to apologize. Thanks again. - Regards, Justin Mathew mjus...@protonmail.com Sent with ProtonMail Secure Email. ‐‐‐ Original Message ‐‐‐ On Thursday, April 18, 2019 8:42 PM, John Ralls wrote: > Justin, > > It's very simple: I've many years of experience with both accounting and > GnuCash. I've run a company which paid dividends and used GnuCash to account > for it. It works fine the way it is, it just doesn't work the way you want to > use it. Too bad. > > Then there's your admission to Maf: > > > On Apr 16, 2019, at 5:37 AM, Justin Mathew via gnucash-devel > > gnucash-de...@gnucash.org wrote: > > Yes, I read this suggestion in gnu tutorial and concepts manual few hours > > ago infact. I am new to accounting to be honest. Just learning it with a > > fictitious company and transactions. > > Regards, > John Ralls > > > On Apr 17, 2019, at 12:55 AM, Justin Mathew via gnucash-devel > > gnucash-de...@gnucash.org wrote: > > And John, > > > > > Justin, > > > No, just you. This is real simple: GnuCash provides two ways to account > > > for reporting retained earnings, including dividends. I'm not asking you > > > to do anything, I'm telling you how GnuCash works. Either you use one of > > > those two ways or you use a different accounting program. > > > > We've been over this. And I am telling you again that how GnuCash handles > > dividends isn't the right way. Recording dividends as an expense is > > technically wrong. It doesn't decrease the equity. And dividends can be > > paid and recorded correctly without closing the books in today's age. > > I am just surprise how reluctant you are to acknowledge that there is an > > issue with the current system and to discuss a possible solution. You're > > impossible man! > > > > - > > > > Regards, > > Justin Mathew > > mjus...@protonmail.com ___ 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-dev] Recording dividend payoffs
Justin, It's very simple: I've many years of experience with both accounting and GnuCash. I've run a company which paid dividends and used GnuCash to account for it. It works fine the way it is, it just doesn't work the way you want to use it. Too bad. Then there's your admission to Maf: > > On Apr 16, 2019, at 5:37 AM, Justin Mathew via gnucash-devel > wrote: > > Yes, I read this suggestion in gnu tutorial and concepts manual few hours ago > infact. I am new to accounting to be honest. Just learning it with a > fictitious company and transactions. > Regards, John Ralls > On Apr 17, 2019, at 12:55 AM, Justin Mathew via gnucash-devel > wrote: > > And John, > >> Justin, >> >> No, just you. This is real simple: GnuCash provides two ways to account for >> reporting retained earnings, including dividends. I'm not asking you to do >> anything, I'm telling you how GnuCash works. Either you use one of those two >> ways or you use a different accounting program. > > We've been over this. And I am telling you again that how GnuCash handles > dividends isn't the right way. Recording dividends as an expense is > technically wrong. It doesn't decrease the equity. And dividends can be paid > and recorded correctly without closing the books in today's age. > > I am just surprise how reluctant you are to acknowledge that there is an > issue with the current system and to discuss a possible solution. You're > impossible man! > > - > Regards, > Justin Mathew > mjus...@protonmail.com ___ 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-dev] Recording dividend payoffs
Maf, > Forget that bit. must have still been waking up. it is 2 separate txns on 3 > accounts Yes, 2 records on 3 accounts. and Dividend Declarations register will always be minus as stated in my prev email. This is because Dividend Declarations only take money out of the business. There is no money coming in. That minus doesn't affect anything. And when the balance is generated this debit is balanced. - Regards, Justin Mathew mjus...@protonmail.com Sent with ProtonMail Secure Email. ‐‐‐ Original Message ‐‐‐ On Wednesday, April 17, 2019 1:46 PM, Maf. King wrote: > On Wednesday, 17 April 2019 08:51:00 BST Maf. King wrote: > > > Said text goes on to explain that the act of declaring a dividend to be > > payable creates a liability account on the company. When dividends are > > paid, that liability account is cleared from equity:retained Earnings > > (presumably company bank balance also reduces, but I haven't thought at > > length about what the 4th balancing account would be in a GC txn). > > Forget that bit. must have still been waking up. it is 2 separate txns on 3 > accounts > > Maf. > > 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-dev] Recording dividend payoffs
On Wednesday, 17 April 2019 08:51:00 BST Maf. King wrote: > Said text goes on to explain that the act of declaring a dividend to be > payable creates a liability account on the company. When dividends are > paid, that liability account is cleared from equity:retained Earnings > (presumably company bank balance also reduces, but I haven't thought at > length about what the 4th balancing account would be in a GC txn). > Forget that bit. must have still been waking up. it is 2 separate txns on 3 accounts Maf. ___ 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-dev] Recording dividend payoffs
Chris, > Or are we talking about Dividends whereby the individual (has shares in > companies) receives money from these shares? This one is Income:Dividends to > Asset:Bank and gets wound up into Retained Earnings after closing books. This isn't what I am talking about. A company can own share in other companies just as a person can. As you very rightly mentioned, this is Income of the company/person. Hence Income:Dividends to Asset:Bank. > Justin are you talking about Dividends whereby the business owner (with > shareholders) sends monies to shareholders? I don't know how to book these > transactions. Asset:Bank -> Expenses:Dividends? Yes, this is what I am talking about - profit share to owners/shareholders. And such payments aren't technically expenses. It's wrong to put them under expense even though that's what we are doing now. Dividends are money that goes out of the company account as a return of shareholder's investment. So dividends are decrease in Retained Earnings or Equity account; it is not an expense even though the money is going out. > Or a combined one whereby the Company Owner (has full, or partial shares in > company) decides to issue dividends, and pays himself and other shareholders > a dividend? (Asset:Business:Bank -> Asset:Personal:Bank) ??? Even in this case, there are pay offs that goes to himself and other shareholders. So yes, this is also the dividend in question. The transaction that you make here is from your business bank to other personal banks accounts of yourself and/or shareholders. It is unwise to include any personal banking accounts in the business account, it messes up your company's assets. If it's sole proprietorship, this is fine. But if it's a business of legal standing (all small businesses are), including personal assets in GnuCash company accounts just imbalances the company's total assets. You can create another account for that File>New File. There should be no Asset:Personal:Bank account in a company book. Let me share how dividends are recorded (irrespective of size of the company) in real world. Quit honestly it's not rocket science. But explaining it is pretty difficult. I'll try. You record two transaction in double entry system for dividends payoffs: a) When the dividends are declared, there is a new liability in the company and you record that by debiting (decreasing) Retained Earnings and crediting (increasing) Liability. Retained Earnings | Description | Corresponding journal | Debit | Credit | Balance Date | Dividends to be paid to shareholder(s) | Liabilities:Dividends Payable | $125,000 | - | -$125,000 b) When the dividends are paid, there is no more liability and the money decreases in bank account. You record that debiting (decreasing) Liability and crediting (decreasing) Current account. Dividends Payable | Description | Corresponding journal | Debit | Credit | Balance Date | Dividends paid to shareholder(s) | Assets:Current Account | $125,000 | - | 0.00 Since most businesses don't close their books because it's more convenient to continue and their legislation allows it, it's hard to credit Retailed Earnings account in Equity. Also, it's technically not right to only debit Retailed Earnings and not credit it. It'll always be in minus. Secondly, there is another 'Retained Earnings' that appear in balance sheet which shows the net income. So two Retained Earnings in the balance sheet is just unnecessary. To fix this, we can use another account called 'Dividends Declared' under Equity instead of Retained Earnings and you'll record it here when dividends are declared, Dividends Declared | Description | Corresponding journal | Debit | Credit | Balance Date | Dividends to be paid to shareholder(s) | Liabilities:Dividends Payable | $125,000 | - | -$125,000 Dividends are paid out and therefore 'Dividends declared' register will always be in minus and in red font since there will be no credit to it. This also serves as a value that has to be adjusted from total net income to give the true Retained Earnings in Balance sheet. Equity register will be in minus over time after dividends paid to shareholder exceed their investment (they get the profit). And it's fine. When a balance sheet is generated, the equity won't be minus since Assets are included in the formula: Equity = Assets - Liabilities. If you're paying shareholder more money that means you have great profit, so equity will be positive in balance sheet. Also, generate the balance sheet and generate income statement and you would find that Retailed Earnings is the same as the net income amount. Retained earnings should reflect the dividend paid to owners. That's the
Re: [GNC] [GNC-dev] Recording dividend payoffs
On Wednesday, 17 April 2019 00:35:15 BST Christopher Lam wrote: > I suspect there's vocabulary issue here. > > Justin are you talking about Dividends whereby the business owner (with > shareholders) sends monies to shareholders? I don't know how to book these > transactions. Asset:Bank -> Expenses:Dividends? > That one. That's how I do it, but OP has been using a reference text online which says quite forcefully that Dividends Paid are not an expense, because expenses are temporary account(s) used to calculate a year's profit. Dividends are paid out of taxed profits, not trading expense accounts. Said text goes on to explain that the act of declaring a dividend to be payable creates a liability account on the company. When dividends are paid, that liability account is cleared from equity:retained Earnings (presumably company bank balance also reduces, but I haven't thought at length about what the 4th balancing account would be in a GC txn). I think that the OP's point is that if you close the books & have a retained earnings account, the reports which calculate & show retained earnings on the fly don't pay attention if there is already an Equity:RE account in the datafile. Blame GAAP! Maf. ___ 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-dev] Recording dividend payoffs
I suspect there's vocabulary issue here. Justin are you talking about Dividends whereby the business owner (with shareholders) sends monies to shareholders? I don't know how to book these transactions. Asset:Bank -> Expenses:Dividends? Or are we talking about Dividends whereby the individual (has shares in companies) receives money from these shares? This one is Income:Dividends to Asset:Bank and gets wound up into Retained Earnings after closing books. Or a combined one whereby the Company Owner (has full, or partial shares in company) decides to issue dividends, and pays himself and other shareholders a dividend? (Asset:Business:Bank -> Asset:Personal:Bank) ??? On Tue, 16 Apr 2019 at 22:26, Justin Mathew wrote: > John, Do you even realize what you've typed? > > > Sorry, you're wrong on both points. > > Apparently you're also implying that not just me, but the whole accounting > ecosystem is wrong because we all believe that Retained Earnings is net > income minus dividend payments. > > > GnuCash doesn't care about the dividend payment, it's up to the > user--i.e. you--to set up your Accounts correctly and make the dividend > payments with the right account. > > It has to care, else don't call it an accounting software, period! Do you > not realize that there is no 'right account' in GnuCash for dividends? If > you put is as expense that's technically wrong, if you put it as equity, > the Retained Earnings calculations ignores it. Isn't that the whole gist of > my emails - that we make one or find a better solution? Brainstorm, discuss > potential solutions, see what we can do for next release to fix it instead > of being defensive? > > The two explanations you gave doesn't fix the issue - > > a) You asked to close the books which will put the money into Retained > Earnings. The problem with this solution is that it forces the user to > close the books when he doesn't have to. Even if you ignore that, the > solution doesn't take care of dividends. Dividends don't get adjusted to > Retained Earnings because you still define Retained Earnings as total > income - total expenses at a particular date. Well, that equation gives you > total net income, not retained earnings. Simple accounting formulas. Maybe > the naming system is wrong as mentioned by Frank. > > b) You asked to make an expense statement to record dividends. Well, > that's the workaround we all are using at the moment, and everyone who > replied to this thread did say that. I am merely suggesting that we find a > proper solution to this because using an expense account for dividends is > just technically wrong. > > >If you need an accounting program that handles it automagically, GnuCash > isn't the right solution for you. > > I don't need an automatic thing! No one is talking about handling > dividends automatically. Dividends can be arbitrary and this very nature > makes it impossible to automate it. I am talking about the right tools > (accounts) to record dividends when they are declared. > > To metaphorize, We need a hammer to hammer a nail and you're saying, > "Sorry, that's just unnecessary, we have an axe, hold the head sideways and > hit the nail with that. It should work!". > > I am just wondering what others in the list thinks of this issue. Should > we work on it, or just let it be? > > > - > Regards, > Justin Mathew > mjus...@protonmail.com > > Sent with ProtonMail Secure Email. > > > - > Regards, > Justin Mathew > mjus...@protonmail.com > > Sent with ProtonMail Secure Email. > > ‐‐‐ Original Message ‐‐‐ > On Wednesday, April 17, 2019 3:06 AM, John Ralls > wrote: > > > Justin, > > > > Sorry, you're wrong on both points. GnuCash doesn't care about the > dividend payment, it's up to the user--i.e. you--to set up your Accounts > correctly and make the dividend payments with the right account. I've > explained twice now how to do that, I won't again. If you need an > accounting program that handles it automagically, GnuCash isn't the right > solution for you. > > > > Regards, > > John Ralls > > > > > On Apr 16, 2019, at 12:30 PM, Justin Mathew mjus...@protonmail.com > wrote: > > > John, > > > > > > > It's not a workaround, it's a choice. Either you close your books or > you don't. If you do then you close to a Retained Earnings account and all > is good. If you don't then GnuCash calculates your retained earnings for > you and all is good. At present if you mix the two then you get two > "Retained Earnings" lines in your report unless you name the account > something else. So don't mix them. > > > > > > I was referring to the use of 'Expense' accounts for dividend payments > as workaround. Not the choice of closing or continuing the books which is > of course a choice. > > > Anyway, I have spent enough time putting my point across. Let me > summarize what Frank and I meant in two bullet points. > > > a) 'Retained Earnings' is your net income minus your dividends paid in > general accounting terms. In GnuCash it means
Re: [GNC] [GNC-dev] Recording dividend payoffs
John, Do you even realize what you've typed? > Sorry, you're wrong on both points. Apparently you're also implying that not just me, but the whole accounting ecosystem is wrong because we all believe that Retained Earnings is net income minus dividend payments. > GnuCash doesn't care about the dividend payment, it's up to the user--i.e. > you--to set up your Accounts correctly and make the dividend payments with > the right account. It has to care, else don't call it an accounting software, period! Do you not realize that there is no 'right account' in GnuCash for dividends? If you put is as expense that's technically wrong, if you put it as equity, the Retained Earnings calculations ignores it. Isn't that the whole gist of my emails - that we make one or find a better solution? Brainstorm, discuss potential solutions, see what we can do for next release to fix it instead of being defensive? The two explanations you gave doesn't fix the issue - a) You asked to close the books which will put the money into Retained Earnings. The problem with this solution is that it forces the user to close the books when he doesn't have to. Even if you ignore that, the solution doesn't take care of dividends. Dividends don't get adjusted to Retained Earnings because you still define Retained Earnings as total income - total expenses at a particular date. Well, that equation gives you total net income, not retained earnings. Simple accounting formulas. Maybe the naming system is wrong as mentioned by Frank. b) You asked to make an expense statement to record dividends. Well, that's the workaround we all are using at the moment, and everyone who replied to this thread did say that. I am merely suggesting that we find a proper solution to this because using an expense account for dividends is just technically wrong. >If you need an accounting program that handles it automagically, GnuCash isn't >the right solution for you. I don't need an automatic thing! No one is talking about handling dividends automatically. Dividends can be arbitrary and this very nature makes it impossible to automate it. I am talking about the right tools (accounts) to record dividends when they are declared. To metaphorize, We need a hammer to hammer a nail and you're saying, "Sorry, that's just unnecessary, we have an axe, hold the head sideways and hit the nail with that. It should work!". I am just wondering what others in the list thinks of this issue. Should we work on it, or just let it be? - Regards, Justin Mathew mjus...@protonmail.com Sent with ProtonMail Secure Email. - Regards, Justin Mathew mjus...@protonmail.com Sent with ProtonMail Secure Email. ‐‐‐ Original Message ‐‐‐ On Wednesday, April 17, 2019 3:06 AM, John Ralls wrote: > Justin, > > Sorry, you're wrong on both points. GnuCash doesn't care about the dividend > payment, it's up to the user--i.e. you--to set up your Accounts correctly and > make the dividend payments with the right account. I've explained twice now > how to do that, I won't again. If you need an accounting program that handles > it automagically, GnuCash isn't the right solution for you. > > Regards, > John Ralls > > > On Apr 16, 2019, at 12:30 PM, Justin Mathew mjus...@protonmail.com wrote: > > John, > > > > > It's not a workaround, it's a choice. Either you close your books or you > > > don't. If you do then you close to a Retained Earnings account and all is > > > good. If you don't then GnuCash calculates your retained earnings for you > > > and all is good. At present if you mix the two then you get two "Retained > > > Earnings" lines in your report unless you name the account something > > > else. So don't mix them. > > > > I was referring to the use of 'Expense' accounts for dividend payments as > > workaround. Not the choice of closing or continuing the books which is of > > course a choice. > > Anyway, I have spent enough time putting my point across. Let me summarize > > what Frank and I meant in two bullet points. > > a) 'Retained Earnings' is your net income minus your dividends paid in > > general accounting terms. In GnuCash it means something else. > > b) GnuCash doesn't handle the dividend payment the technically correct way. > > Dividends should decrease the equity and gets balanced out. > > Only if b is fixed, can a be fixed. And no, this is not just pedantry! I > > wish you can see the seriousness in this issue. > > If it's a bug, users can wait for the fix in the next release, but if it's > > a flaw in design which isn't acknowledged, there is little that users can > > do. > > Thank you all. I know you'll do what's good for the software. > > > > - > > > > Regards, > > Justin Mathew > > mjus...@protonmail.com > > Sent with ProtonMail Secure Email. > > ‐‐‐ Original Message ‐‐‐ > > On Wednesday, April 17, 2019 12:28 AM, John Ralls jra...@ceridwen.us wrote: > > > > > Justin, > > > It's not a workaround, it's a choice.
