[GNC] Stock account type "child account" under Equity account type "parent account".

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[GNC] Stock account type "child account" under Equity account type "parent account".

jason
This post was updated on .
Good afternoon,
I have two objectives regarding the subject;
1. Issue stocks to unique entity.
2. Grant stock options.

Therefore, I would like to create some accounts.
Equities:Capital:Paid-in Capital in Excess of Par:Entity A
Equities:Capital:Common Stock:Entity A *(Account Type: Equity, by default it
cannot be changed to Stock. I want to change the account type to Stock so I can perform Stock Split using appropiate tool)
*
Equities:Capital:Paid-in Capital – Stock Options
Other Expenses:Non-Operating Expenses:Other Expenses:Compensation Expense
(vesting period related)

I understand by default GNUCash were unable to execute these objective.

*I would love to hear your thoughts about this and where I did wrong.*

Best regards,
Jason.



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Re: [GNC] Stock account type "child account" under Equity account type "parent account".

David Cousens
Jason,

Have a look at these articles on stock transactions for companies issuing
and buying back stock
(https://www.fool.com/knowledge-center/does-the-issuance-of-common-stock-increase-common.aspx,
https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-ii/corporations/accounting-for-stock-transactions).
While these relate specifically to the US, the general principles in
treating such transactions will be similar, although the applicable
legislation may differ and you should get professional advice in your
jurisdiction on this.

Your company, if it trades in its own stock  (this is illegal  in many/most
jurisdictions although individuals who run a company may own stock in the
company), would treat the stock it trades in as an asset.
The issued stock is only ever valued at its issue price in equity, i.e. the
cash you receive in exchange for shares in the company.

Stock options are also discussed here
https://study.com/academy/lesson/accounting-for-stock-options-equity-compensation-plans.html
or https://en.wikipedia.org/wiki/Stock_option_expensing. Again what is
presented here is a guide only. If your corporation legislation is different
it may differ in detail but it is unlikely the general methodology of the
treatment will be too much different.

Why would you need to do a stock split on the equity? You are not dealing
with a situation where you may have bought lots of stock at different times
and different prices and have to determine the capital gains applying to
each lot. This only applies if you are trading stock in other companies, not
to issued stock.

David Cousens



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Re: [GNC] Stock account type "child account" under Equity account type "parent account".

jason
Morning, David.


David Cousens wrote
> Your company, if it trades in its own stock  (this is illegal  in
> many/most jurisdictions although individuals who run a company may own
> stock in the company)

*Would you like to clarify "trades in its own stock"? Is this not limited to
"issuing stock to get cash" and grant stock options to employee (possibily
substitute of cash as wages)?*

----

I have a dream. To own a company of my own making with tax compliance in
mind. Thus, I would have to record transactions appropriately.

*1. Stock split to issued stocks.*

I was planning to use GnuCash for more than 5 years. But, I found it
impractical as I will assign these tasks to a CFO on later date. In the 5
years span, I believe I will need to do a stock split and though if GnuCash
unable to do what I need it would be a waste.

*In short, I drop my case about Stock Split.* I will migrate to cloud-based
accounting software where I can monitor who and when an individual posted an
entry.

*2. Stock account type as "child account" under Equity account type as
"parent account"*

I found it to be convenient to know how much stocks has been issued, owned
and paid by an entity. As of right now, the current solution is to create
separate accounts
Equities:Equities:Capital:Paid-in Capital:Common Stock:Entity A
Equities:Equities:Capital:Paid-in Capital:Paid-in Capital in Excess of Par
Value--Common Stock:Entity A

In short term, it is not hard to calculate how much stocks has been issued
through Entity A, B, C accounts (of Common Stock) whenever we need to
calculate how much % shares owned by a specific entity either to do a vote
or else.

This will achieve two things,
1. Manual labor for CFO and his/her subordinate in the long term, not good
for the company and the team.
2. Consequently, Finance department will need to use different software to
handle this matter. I like to simplify things and more software sound to be
the opposite of it.

In conclusion,
I believe GnuCash do not fit to do these tasks in the long run (issue
stocks, grant stock options, calculate % shares owned, calculate the voting
rights etc). I will be forced to do the manual labor using GnuCash for the
first 2 years.



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Liz
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Re: [GNC] Stock account type "child account" under Equity account type "parent account".

Liz
In reply to this post by David Cousens
On Sun, 3 Feb 2019 20:35:22 -0600 (CST)
jason <[hidden email]> wrote:

> Test
>
> It seems my post did not deliver.
>
>
>
> --
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Which post - there is one 24 minutes before this one.
Are there others?

You are posting from a gmail account. gmail thinks that you don't need
to see posts which you sent yourself.

Either check "All Mail" in gmail, or the list archives if need to know
if a post is missing.

Liz,
Moderator Hat Today.
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Re: [GNC] Stock account type "child account" under Equity account type "parent account".

David Cousens
In reply to this post by jason
Jason,

"trades in its own stock"    It is usually illegal for a company to hold its
own shares as assets of the company (except as Treasury stock which does not
have the rights of a shareholder
https://en.wikipedia.org/wiki/Treasury_stock). This is the case in
Australian and UK law
http://www.takeovers.gov.au/content/Resources/cslrc/cslrc_discussion_paper_no_5.aspx.

US law position is illustrated here
https://scholar.smu.edu/cgi/viewcontent.cgi?article=3793&context=smulr. and
is less clear cut.

This is distinct from issuing stock or a stock split to lower the market
value of the shares held by shareholders by issuing more shares in a
proportional manner.

AFAIK the stock split procedures described in GnuCash are implemented purely
from the point of view of the owner of the shares who wishes to record that
a company in which he owns shares has undertaken a stock split and he is
recording the effect of the stock split on those shares that he  he owns.

I don't think this procedure however handles the accounting for a stock
split from perspective ofthe company who issues the stock split to its
shareholders. Derek will correct me if I am wrong on that.

That was covered in outline in one of the articles I posted earlier. (In
practice you may have to account for costs associated with the stock
exchange requirements, issue of the securities etc. as well)  GnuCash can
certainly handle recording this from an accounting perspective, but its
business features don't extend to any automation of or calculations for the
process. All entries would be manual.

If you are seriously operating a company that is publicly floated or going
to be, you may need to look more closely at what your accounting needs will
be and take professional advice as to appropriate software. This will
particularly the case if you have significant payroll and/or inventory or
cost management requirements. GnuCash has no capability in these areas at
the moment and is unlikely to have in the near future. If you have a CFO in
mind, it would be wise to consult him/her about such decisions as well.

David Cousens





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