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 <mjus...@protonmail.com> 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 <jra...@ceridwen.us> > 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. 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. > > > > If someone was so inclined GnuCash could handle a middle way to > combine the calculated retained earnings with a designated (by report > option, I suppose) retained earnings account and report it on a single > line, but frankly I don't see much reason for that beyond pedantry. > > > > Regards, > > > > John Ralls > > > > > > > > > On Apr 16, 2019, at 9:31 AM, Justin Mathew mjus...@protonmail.com > wrote: > > > > > From what I have seen on GnuCash, we can generate profit loss > statement for a fiscal year without closing the books. And therefore we can > determine the dividends to be paid without closing the books. And anytime > you generate a balance sheet, 'Retained Earnings' are mentioned. So we > don't need to close any books to generate these figures. > > > > > If you calculate 'Retained Earnings' as your net income minus > dividends for that fiscal year, don't we credit the 'Retained Earnings' > account without closing the books? > > > > > > > > > > > On the other hand, if you want to never close your books just > create an expense account for dividends and exclude it from the various > Expense reports and the Income Statement (aka Profit & Loss) report. That's > not formally correct, but the result is the same. > > > > > > > > > > I know this workaround, it was discussed in the user mailing list > itself. The reason of this thread is to find a fix to this issue at least > for the next release. > > > > > If we bring in a Dividend type account under Equity we can debit > dividend declarations to this account. We don't have to credit this account > by the way. The account will be in minus with red font as in current > version. The balance in this account will be transferred to net account > resulting in the proper 'Retained Earnings'. > > > > > Eg, total net income = $50,000 > > > > > Dividends are declared = $25,000 to be paid to shareholders > > > > > Dividend Declared account in Equity will show -$25,000 since it is > only debited. > > > > > Retained Earnings = Net income + Dividend Declared = 50000+ > (-20000) = 30000 > > > > > When you calculate 'Retained Earnings' the way it should be > calculated, it gives the accurate number whether the books are closed or > not. > > > > > GnuCash has to work accurately with all businesses whether small > or big, instead of using workarounds. > > > > > > > > > > - > > > > > > > > > > Regards, > > > > > Justin Mathew > > > > > mjus...@protonmail.com > > > > > Sent with ProtonMail Secure Email. > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐ > > > > > On Tuesday, April 16, 2019 8:13 PM, John Ralls jra...@ceridwen.us > wrote: > > > > > > > > > > > The Retained Earnings part of the Balance Sheet report was > written with that in mind. > > > > > > The automatic calculation of retained earnings in the Balance > Sheet report nets out the income and expense accounts; if there's a > Retained Earnings account it will get reported too. Since the way to credit > Retained Earnings (an Equity account) is to close the books, debiting all > of the income and expense accounts by their balances and crediting Retained > Earnings. Now income and expense are 0 and the calculated Retained Earnings > line won't appear. You can treat its appearance as a reminder that you > haven't closed the books yet. > > > > > > On the other hand, if you want to never close your books just > create an expense account for dividends and exclude it from the various > Expense reports and the Income Statement (aka Profit & Loss) report. That's > not formally correct, but the result is the same. > > > > > > Regards, > > > > > > John Ralls > > > > > > > > > > > > > On Apr 16, 2019, at 7:22 AM, Christopher Lam > christopher....@gmail.com wrote: > > > > > > > Oops. My mistake: The "Retained Earnings" part in GnuCash's > Balance-sheet > > > > > > > has not been written with that in mind by the original report > writers. > > > > > > > Amendments to reports are possible but please submit an > enhancement in > > > > > > > bugzilla. > > > > > > > Ideally with an suitable chart of accounts, with some sample > real-life > > > > > > > transactions. > > > > > > > On Tue, 16 Apr 2019 at 14:04, Justin Mathew > mjus...@protonmail.com wrote: > > > > > > > > > > > > > > > Christopher, > > > > > > > > > > > > > > > > > The "Retained Earnings" part of the Balance Sheet has > nothing to do with > > > > > > > > > dividends. > > > > > > > > > IIUC on the balance sheet date X, the retained earnings > simply means the > > > > > > > > > total income up to date X, minus total expenses up to date > X. > > > > > > > > > > > > > > > > Don't get me wrong, the 'retained earnings' anywhere in > accounting (not > > > > > > > > just in the balance sheet) should have everything to do with > dividends. > > > > > > > > It's the accounting definition that 'Retained earnings' is > the business' > > > > > > > > net income - cash/stock dividends. > > > > > > > > The definition of 'total income minus total expenses' works > only for sole > > > > > > > > proprietorships where the business isn't a legal entity in > it's own right. > > > > > > > > A registered business, however small it is will have at > least one > > > > > > > > shareholder. Most small businesses will have more than one > from what I have > > > > > > > > seen. > > > > > > > > > > > > > > > > > From your description of 'owning a company with shares' / > 'selling > > > > > > > > > shares of company' / 'issuing dividends' I honestly have > no idea how the > > > > > > > > > books should look like, nor which chart of accounts should > apply, nor > > > > > > > > > whether the GnuCash reports are appropriate to produce > useful reports. > > > > > > > > > > > > > > > > Oh yes, GnuCash should be able fit in all business, because > they all > > > > > > > > follow the same accounting principles. All we need to do is > to calculate > > > > > > > > 'Retained Earnings' as per the standard accounting formula - > it should > > > > > > > > account for dividends paid. > > > > > > > > Understanding which transactions are dividends to account > for is a problem. > > > > > > > > Dividends are a decrease in equity and can't be recorded in > an 'Expense' > > > > > > > > type account (although that's the current workaround and > technically > > > > > > > > wrong). Therefore what I suggest is to create a dividend > account type under > > > > > > > > equity (equity currently has only 1 type of account) which > can be used to > > > > > > > > record dividend declarations. The value of this account can > then be > > > > > > > > adjusted from total income. This will give us the real > 'Retained Earnings'. > > > > > > > > Note that: The corresponding journal entry for recording in > dividend > > > > > > > > declaration account is 'dividend payable' (which is a > liability account > > > > > > > > created by user). To record a dividend paid, a second record > is created in > > > > > > > > 'dividend payable' against the journal 'current account' or > 'cash account'. > > > > > > > > > > > > > > > > - > > > > > > > > > > > > > > > > Regards, > > > > > > > > Justin Mathew > > > > > > > > mjus...@protonmail.com > > > > > > > > Sent with ProtonMail Secure Email. > > > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐ > > > > > > > > On Tuesday, April 16, 2019 6:25 PM, Christopher Lam < > > > > > > > > christopher....@gmail.com> wrote: > > > > > > > > > > > > > > > > > The "Retained Earnings" part of the Balance Sheet has > nothing to do with > > > > > > > > > dividends. > > > > > > > > > IIUC on the balance sheet date X, the retained earnings > simply means the > > > > > > > > > total income up to date X, minus total expenses up to date > X. > > > > > > > > > If the books were 'closed' on date X, the income&expenses > would be > > > > > > > > > zeroed out to Equity:Closing Transactions. This is what > Retained Earnings > > > > > > > > > mean to reflect. They suit most sole traders / small > businesses very well. > > > > > > > > > From your description of 'owning a company with shares' / > 'selling > > > > > > > > > shares of company' / 'issuing dividends' I honestly have > no idea how the > > > > > > > > > books should look like, nor which chart of accounts should > apply, nor > > > > > > > > > whether the GnuCash reports are appropriate to produce > useful reports. > > > > > > > > > On Tue, 16 Apr 2019 at 12:39, Justin Mathew via > gnucash-user < > > > > > > > > > gnucash-user@gnucash.org> wrote: > > > > > > > > > > > > > > > > > > > Maf, > > > > > > > > > > > > > > > > > > > > > you should keep replies on-list, others can contribute > and maybe in > > > > > > > > > > > the future > > > > > > > > > > > > > > > > > > > > the thread can save a question being asked in the > first place.... > > > > > > > > > > > "reply All" > > > > > > > > > > > > > > > > > > > > in your email client is a good way. > > > > > > > > > > > > > > > > > > > > Opps, I had read about it, but missed it in the heat of > replying. > > > > > > > > > > Will keep that mind henceforth. > > > > > > > > > > > > > > > > > > > > > Closing the books was important in paper days, not so > much with > > > > > > > > > > > digital > > > > > > > > > > > > > > > > > > > > accounts where the software can do everything quickly > & repeatably., > > > > > > > > > > > IMHO > > > > > > > > > > > > > > > > > > > > closing books isn't really needed any more, as long as > you keep > > > > > > > > > > > secure backups > > > > > > > > > > > > > > > > > > > > & reports etc for traceablity over the years. > > > > > > > > > > > > > > > > > > > > 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. > > > > > > > > > > > > > > > > > > > > I have a part of the expenses tree that is something > like > > > > > > > > > > > "non-taxable". so > > > > > > > > > > > > > > > > > > > > expenses:non-taxable:dividends or :corporationTax etc. > Easy to > > > > > > > > > > > exclude the > > > > > > > > > > > > > > > > > > > > whole branch from reports rather than ad-hoc accounts. > > > > > > > > > > > > > > > > > > > > And I didn't know that feature existed. > > > > > > > > > > > > > > > > > > > > > whereas your earlier reference says that dividends are > paid from a > > > > > > > > > > > temproary > > > > > > > > > > > > > > > > > > > > equity account that reduces retained earnings. (sounds > like an > > > > > > > > > > > "expense" > > > > > > > > > > > > > > > > > > > > (english sense, not formal GAAP definition) to me, in > that both > > > > > > > > > > > sorts of > > > > > > > > > > > > > > > > > > > > payment reduce retained earnings - just that dividends > are after the > > > > > > > > > > > profit & > > > > > > > > > > > > > > > > > > > > tax calcs are done) > > > > > > > > > > > > > > > > > > > > That's a good way to think. And I guess, this is the > only workaround > > > > > > > > > > at the moment. It does 'sounds' like expense but I am > not too sure to say > > > > > > > > > > that it 'is' expense. > > > > > > > > > > > > > > > > > > > I don't know if I can call this a bug; but this isn't > the technically > > > > > > > > > > correct behavior. GnuCash is intended to be used in > accounting spheres > > > > > > > > > > regulated by different govts and laws. And because of > this, GnuCash should > > > > > > > > > > treat dividend payoffs in the standardized and > technically correct way ie, > > > > > > > > > > a dividend declaration account that is a part of > 'equity' which reduces the > > > > > > > > > > 'retained earnings' in reports. > > > > > > > > > > > > > > > > > > > Anyway, let the more experienced development team make a > call on this. > > > > > > > > > > I shall raise this with the dev team as well. I am alao > copying this to > > > > > > > > > > gnucash-de...@gnucash.org. I am not a part of the dev > mailing lists, but > > > > > > > > > > I guess this will reach them. > > > > > > > > > > > > > > > > > > > - > > > > > > > > > > > > > > > > > > > > Regards, > > > > > > > > > > Justin Mathew > > > > > > > > > > mjus...@protonmail.com > > > > > > > > > > Sent with ProtonMail Secure Email. > > > > > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐ > > > > > > > > > > On Tuesday, April 16, 2019 5:34 PM, Maf. King > m...@chilwell.net > > > > > > > > > > wrote: > > > > > > > > > > > > > > > > > > > > Hi Justin, > > > > > > > > > > > you should keep replies on-list, others can contribute > and maybe in > > > > > > > > > > > the future > > > > > > > > > > > > > > > > > > > > the thread can save a question being asked in the > first place.... > > > > > > > > > > > "reply All" > > > > > > > > > > > > > > > > > > > > in your email client is a good way. > > > > > > > > > > > I think it is a bit of a technical distinction, GAAP > left over from > > > > > > > > > > > the days > > > > > > > > > > > > > > > > > > > > of paper books. Formally, expenses are a (set of ) > temporary equity > > > > > > > > > > > account(s) that should be closed (or zeroed) to a > retained earnings > > > > > > > > > > > equity > > > > > > > > > > > > > > > > > > > > account each year - to give a profit figure. > > > > > > > > > > > whereas your earlier reference says that dividends are > paid from a > > > > > > > > > > > temproary > > > > > > > > > > > > > > > > > > > > equity account that reduces retained earnings. (sounds > like an > > > > > > > > > > > "expense" > > > > > > > > > > > > > > > > > > > > (english sense, not formal GAAP definition) to me, in > that both > > > > > > > > > > > sorts of > > > > > > > > > > > > > > > > > > > > payment reduce retained earnings - just that dividends > are after the > > > > > > > > > > > profit & > > > > > > > > > > > > > > > > > > > > tax calcs are done) > > > > > > > > > > > Closing the books was important in paper days, not so > much with > > > > > > > > > > > digital > > > > > > > > > > > > > > > > > > > > accounts where the software can do everything quickly > & repeatably., > > > > > > > > > > > IMHO > > > > > > > > > > > > > > > > > > > > closing books isn't really needed any more, as long as > you keep > > > > > > > > > > > secure backups > > > > > > > > > > > > > > > > > > > > & reports etc for traceablity over the years. > > > > > > > > > > > I have a part of the expenses tree that is something > like > > > > > > > > > > > "non-taxable". so > > > > > > > > > > > > > > > > > > > > expenses:non-taxable:dividends or :corporationTax etc. > Easy to > > > > > > > > > > > exclude the > > > > > > > > > > > > > > > > > > > > whole branch from reports rather than ad-hoc accounts. > > > > > > > > > > > If you think that it is a bug / sub-optimal behaviour, > by all means > > > > > > > > > > > submit a > > > > > > > > > > > > > > > > > > > > bug report or RFE for the devs to comment on. They > know far more > > > > > > > > > > > than me > > > > > > > > > > > > > > > > > > > > about the GC architecture decisions etc. > > > > > > > > > > > Maf. > > > > > > > > > > > On Tuesday, 16 April 2019 12:21:52 BST Justin Mathew > wrote: > > > > > > > > > > > > > > > > > > > > > > > Yes, that seems to be the only way now. Gnucash > doesn't complain > > > > > > > > > > > > if we do > > > > > > > > > > > > > > > > > > > > > that way. And you're indeed lucky that you're > accountant doesn't > > > > > > > > > > > > complain. > > > > > > > > > > > > > > > > > > > > > :) > > > > > > > > > > > > To think from a larger perspective now, I think > GnuCash should to > > > > > > > > > > > > handle > > > > > > > > > > > > > > > > > > > > > dividends the right way; primarily because dividend > isn't > > > > > > > > > > > > technically an > > > > > > > > > > > > > > > > > > > > > expense of the business and marking it as an expense > will only > > > > > > > > > > > > create > > > > > > > > > > > > > > > > > > > > > issues later (eg, inaccurate certain expense > reports, wrong > > > > > > > > > > > > analytics, > > > > > > > > > > > > > > > > > > > > > etc.). > > > > > > > > > > > > If this behavior isn't because of the way we (users) > are doing it, > > > > > > > > > > > > shall I > > > > > > > > > > > > > > > > > > > > > notify in the development list to consider this as > an error and > > > > > > > > > > > > correct it? > > > > > > > > > > > > > > > > > > > > > - > > > > > > > > > > > > > > > > > > > > > > > > Regards, > > > > > > > > > > > > Justin Mathew > > > > > > > > > > > > mjus...@protonmail.com > > > > > > > > > > > > Sent with ProtonMail Secure Email. > > > > > > > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐ > > > > > > > > > > > > On Tuesday, April 16, 2019 4:42 PM, Maf. King > m...@chilwell.net > > > > > > > > > > > > wrote: > > > > > > > > > > > > > > > > > > > > > > Hi Justin, > > > > > > > > > > > > > while it is contrary to the advice given in the > link you > > > > > > > > > > > > > supplied, I've > > > > > > > > > > > > > > > > > > > > > > always recorded dividend payouts as an Expense - > but it is one > > > > > > > > > > > > > of a > > > > > > > > > > > > > > > > > > > > > > handful that are excluded from the corporation tax > calc, as they > > > > > > > > > > > > > are > > > > > > > > > > > > > > > > > > > > > > declared after tax / from profits. > > > > > > > > > > > > > My accountant has never complained - UK regs - > YMMV, of course! > > > > > > > > > > > > > Maf. > > > > > > > > > > > > > > > > > > > > > > -- > > > > > > > > > > > Maf. 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