Re: [GNC-dev] [GNC] Recording dividend payoffs

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Re: [GNC-dev] [GNC] Recording dividend payoffs

GnuCash - Dev mailing list
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 [hidden email]. I am not a part of the dev mailing lists, but I guess this will reach them.


-
Regards,
Justin Mathew
[hidden email]

Sent with ProtonMail Secure Email.

‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
On Tuesday, April 16, 2019 5:34 PM, Maf. King <[hidden email]> 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
> > [hidden email]
> > Sent with ProtonMail Secure Email.
> > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email] 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. King
> PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7 C542


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Re: [GNC-dev] [GNC] Recording dividend payoffs

GnuCash - Dev mailing list
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
[hidden email]

Sent with ProtonMail Secure Email.

‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <[hidden email]> 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 <[hidden email]> 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 [hidden email]. I am not a part of the dev mailing lists, but I guess this will reach them.
> >
> > -
> > Regards,
> > Justin Mathew
> > [hidden email]
> >
> > Sent with ProtonMail Secure Email.
> >
> > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > On Tuesday, April 16, 2019 5:34 PM, Maf. King <[hidden email]> 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
> > > > [hidden email]
> > > > Sent with ProtonMail Secure Email.
> > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email] 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. King
> > > PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7 C542
> >
> > _______________________________________________
> > gnucash-user mailing list
> > [hidden email]
> > 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.


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Re: [GNC-dev] [GNC] Recording dividend payoffs

Christopher Lam
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 <[hidden email]> 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
> [hidden email]
>
> Sent with ProtonMail Secure Email.
>
> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
> [hidden email]> 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 <
> [hidden email]> 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
> [hidden email]. I am not a part of the dev mailing lists, but
> I guess this will reach them.
> > >
> > > -
> > > Regards,
> > > Justin Mathew
> > > [hidden email]
> > >
> > > Sent with ProtonMail Secure Email.
> > >
> > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > On Tuesday, April 16, 2019 5:34 PM, Maf. King <[hidden email]>
> 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
> > > > > [hidden email]
> > > > > Sent with ProtonMail Secure Email.
> > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email]
> 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. King
> > > > PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7
> C542
> > >
> > > _______________________________________________
> > > gnucash-user mailing list
> > > [hidden email]
> > > 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.
>
>
>
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Re: [GNC-dev] [GNC] Recording dividend payoffs

GnuCash - Dev mailing list
You mean here https://bugs.gnucash.org/ ?

-
Regards,
Justin Mathew
[hidden email]

Sent with ProtonMail Secure Email.

‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
On Tuesday, April 16, 2019 7:52 PM, Christopher Lam <[hidden email]> 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 <[hidden email]> 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
> > [hidden email]
> >
> > Sent with ProtonMail Secure Email.
> >
> > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <[hidden email]> 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 <[hidden email]> 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 [hidden email]. I am not a part of the dev mailing lists, but I guess this will reach them.
> > > >
> > > > -
> > > > Regards,
> > > > Justin Mathew
> > > > [hidden email]
> > > >
> > > > Sent with ProtonMail Secure Email.
> > > >
> > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > On Tuesday, April 16, 2019 5:34 PM, Maf. King <[hidden email]> 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
> > > > > > [hidden email]
> > > > > > Sent with ProtonMail Secure Email.
> > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > > On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email] 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. King
> > > > > PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7 C542
> > > >
> > > > _______________________________________________
> > > > gnucash-user mailing list
> > > > [hidden email]
> > > > 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.
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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2
In reply to this post by Christopher Lam
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 <[hidden email]> 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 <[hidden email]> 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
>> [hidden email]
>>
>> Sent with ProtonMail Secure Email.
>>
>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>> On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
>> [hidden email]> 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 <
>> [hidden email]> 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
>> [hidden email]. I am not a part of the dev mailing lists, but
>> I guess this will reach them.
>>>>
>>>> -
>>>> Regards,
>>>> Justin Mathew
>>>> [hidden email]
>>>>
>>>> Sent with ProtonMail Secure Email.
>>>>
>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>> On Tuesday, April 16, 2019 5:34 PM, Maf. King <[hidden email]>
>> 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
>>>>>> [hidden email]
>>>>>> Sent with ProtonMail Secure Email.
>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>> On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email]
>> 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. King
>>>>> PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7
>> C542
>>>>
>>>> _______________________________________________
>>>> gnucash-user mailing list
>>>> [hidden email]
>>>> 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-devel mailing list
> [hidden email]
> https://lists.gnucash.org/mailman/listinfo/gnucash-devel

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Re: [GNC-dev] [GNC] Recording dividend payoffs

GnuCash - Dev mailing list
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
[hidden email]

Sent with ProtonMail Secure Email.

‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
On Tuesday, April 16, 2019 8:13 PM, John Ralls <[hidden email]> 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 [hidden email] 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 [hidden email] 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
> > > [hidden email]
> > > Sent with ProtonMail Secure Email.
> > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
> > > [hidden email]> 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 <
> > > > [hidden email]> 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
> > > > > [hidden email]. I am not a part of the dev mailing lists, but
> > > > > I guess this will reach them.
> > > >
> > > > > -
> > > > >
> > > > > Regards,
> > > > > Justin Mathew
> > > > > [hidden email]
> > > > > Sent with ProtonMail Secure Email.
> > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > On Tuesday, April 16, 2019 5:34 PM, Maf. King [hidden email]
> > > > > 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
> > > > > > > [hidden email]
> > > > > > > Sent with ProtonMail Secure Email.
> > > > > > > ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> > > > > > > On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email]
> > > > > > > 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. King
> > > > > > PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7
> > > > > > C542
> > > >
> > > > > gnucash-user mailing list
> > > > > [hidden email]
> > > > > 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-devel mailing list
> > [hidden email]
> > https://lists.gnucash.org/mailman/listinfo/gnucash-devel


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Re: [GNC-dev] [GNC] Recording dividend payoffs

Frank H. Ellenberger-3
In reply to this post by John Ralls-2
Hi John,

Am 16.04.19 um 16:43 schrieb John Ralls:
> The Retained Earnings part of the Balance Sheet report *was* written with that in mind.

Source?

> 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.

We have in our Glossary
https://github.com/Gnucash/gnucash/blob/maint/po/glossary/gnc-glossary.txt#158
:
"Retained Earnings" "name of an equity account (?); to be distinguished
from the opening balance."

But that is a vague term. It was intended for private users, but
business users have EBITA, EBIT, ...

I remember, we had in German the translation "Gewinnvortrag", which is a
formal correct translation for "Retained Earnings", but it was not, what
GnuCash was showing. I did not check other translations, which meaning
they have choosen.

IMHO we should fix our terminology here. Suggestions?

> 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 would not use an expense account, but reduce/share the income/equity
depending on the legislation.

> Regards,
> John Ralls

Regards

Frank
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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2
In reply to this post by Christopher Lam
Adrien,

You copied the wrong list, this thread was in gnucash-devel.

Regards,
John Ralls

> On Apr 16, 2019, at 7:47 AM, Adrien Monteleone <[hidden email]> wrote:
>
> If you create an Equity:Retained Earnings account and debit it, while crediting Dividends Payable (the formal method) does this not show up on the Balance Sheet?
>
> I understand that you would have two ‘Retained Earnings’ lines, one being the actual account and the other being the calculated amount by GnuCash. The sum of the two should be the true amount. This means you can’t submit the report as-is, but you could certainly export to a spreadsheet for the small modification first.
>
> Of course, it would be nice if the report factored in an actual Equity:Retained Earnings account to its calculation.
>
> There is an alternate practice of using a contra-equity account that is later closed to Retained Earnings called “Dividends Declared” or simply “Dividends”. I don’t see much advantage to it since you still have a liability you can track either way.
>
> Regards,
> Adrien
>
>> On Apr 16, 2019, at 9:04 AM, Justin Mathew via gnucash-user <[hidden email]> 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
>
>
> _______________________________________________
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> To update your subscription preferences or to unsubscribe:
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> -----
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Re: [GNC-dev] [GNC] Recording dividend payoffs

Adrien Monteleone-2
My bad,

I saw the thread starting in the user list, I never saw it in devel. So when I replied, I set it to user. I’ll update my filters to file into devel ahead of user and be more careful next time when setting my reply address(es).

Regards,
Adrien

> On Apr 16, 2019, at 11:37 AM, John Ralls <[hidden email]> wrote:
>
> Adrien,
>
> You copied the wrong list, this thread was in gnucash-devel.
>
> Regards,
> John Ralls
>
>> On Apr 16, 2019, at 7:47 AM, Adrien Monteleone <[hidden email]> wrote:
>>
>> If you create an Equity:Retained Earnings account and debit it, while crediting Dividends Payable (the formal method) does this not show up on the Balance Sheet?
>>
>> I understand that you would have two ‘Retained Earnings’ lines, one being the actual account and the other being the calculated amount by GnuCash. The sum of the two should be the true amount. This means you can’t submit the report as-is, but you could certainly export to a spreadsheet for the small modification first.
>>
>> Of course, it would be nice if the report factored in an actual Equity:Retained Earnings account to its calculation.
>>
>> There is an alternate practice of using a contra-equity account that is later closed to Retained Earnings called “Dividends Declared” or simply “Dividends”. I don’t see much advantage to it since you still have a liability you can track either way.
>>
>> Regards,
>> Adrien
>>
>>> On Apr 16, 2019, at 9:04 AM, Justin Mathew via gnucash-user <[hidden email]> 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
>


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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2
In reply to this post by GnuCash - Dev mailing list
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 <[hidden email]> 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
> [hidden email]
>
> Sent with ProtonMail Secure Email.
>
> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> On Tuesday, April 16, 2019 8:13 PM, John Ralls <[hidden email]> 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 [hidden email] 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 [hidden email] 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
>>>> [hidden email]
>>>> Sent with ProtonMail Secure Email.
>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>> On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
>>>> [hidden email]> 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 <
>>>>> [hidden email]> 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
>>>>>> [hidden email]. I am not a part of the dev mailing lists, but
>>>>>> I guess this will reach them.
>>>>>
>>>>>> -
>>>>>>
>>>>>> Regards,
>>>>>> Justin Mathew
>>>>>> [hidden email]
>>>>>> Sent with ProtonMail Secure Email.
>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>> On Tuesday, April 16, 2019 5:34 PM, Maf. King [hidden email]
>>>>>> 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
>>>>>>>> [hidden email]
>>>>>>>> Sent with ProtonMail Secure Email.
>>>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>>>> On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email]
>>>>>>>> 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. King
>>>>>>> PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7
>>>>>>> C542
>>>>>
>>>>>> gnucash-user mailing list
>>>>>> [hidden email]
>>>>>> 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-devel mailing list
>>> [hidden email]
>>> https://lists.gnucash.org/mailman/listinfo/gnucash-devel
>
>

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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2
In reply to this post by Frank H. Ellenberger-3
Frank,

I think that the glossary entry is only partly right. "Retained Earnings" certainly can be an account, but it's also a concept: It's the collected profits of the company over time that haven't been distributed to the owners.

Earnings before stuff lines are non-GAAP values that publicly-traded companies use in their pro-forma reports to shareholders to make it look like they made a bigger profit than they did. GnuCash isn't for publicly traded companies so we don't need to bother with that noise.

Regards,
John Ralls


> On Apr 16, 2019, at 9:35 AM, Frank H. Ellenberger <[hidden email]> wrote:
>
> Hi John,
>
> Am 16.04.19 um 16:43 schrieb John Ralls:
>> The Retained Earnings part of the Balance Sheet report *was* written with that in mind.
>
> Source?
>
>> 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.
>
> We have in our Glossary
> https://github.com/Gnucash/gnucash/blob/maint/po/glossary/gnc-glossary.txt#158
> :
> "Retained Earnings" "name of an equity account (?); to be distinguished
> from the opening balance."
>
> But that is a vague term. It was intended for private users, but
> business users have EBITA, EBIT, ...
>
> I remember, we had in German the translation "Gewinnvortrag", which is a
> formal correct translation for "Retained Earnings", but it was not, what
> GnuCash was showing. I did not check other translations, which meaning
> they have choosen.
>
> IMHO we should fix our terminology here. Suggestions?
>
>> 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 would not use an expense account, but reduce/share the income/equity
> depending on the legislation.
>
>> Regards,
>> John Ralls
>
> Regards
>
> Frank

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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2
In reply to this post by John Ralls-2
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.

Regards,
John Ralls

> On Apr 16, 2019, at 3:25 PM, Justin Mathew <[hidden email]> 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
> [hidden email]
>
> Sent with ProtonMail Secure Email.
>
>
> -
> Regards,
> Justin Mathew
> [hidden email]
>
> Sent with ProtonMail Secure Email.
>
> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> On Wednesday, April 17, 2019 3:06 AM, John Ralls <[hidden email]> 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 [hidden email] 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
>>> [hidden email]
>>> Sent with ProtonMail Secure Email.
>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>> On Wednesday, April 17, 2019 12:28 AM, John Ralls [hidden email] 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 [hidden email] 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
>>>>> [hidden email]
>>>>> Sent with ProtonMail Secure Email.
>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>> On Tuesday, April 16, 2019 8:13 PM, John Ralls [hidden email] 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 [hidden email] 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 [hidden email] 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
>>>>>>>> [hidden email]
>>>>>>>> Sent with ProtonMail Secure Email.
>>>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>>>> On Tuesday, April 16, 2019 6:25 PM, Christopher Lam <
>>>>>>>> [hidden email]> 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 <
>>>>>>>>> [hidden email]> 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
>>>>>>>>>> [hidden email]. I am not a part of the dev mailing lists, but
>>>>>>>>>> I guess this will reach them.
>>>>>>>>>
>>>>>>>>>> -
>>>>>>>>>>
>>>>>>>>>> Regards,
>>>>>>>>>> Justin Mathew
>>>>>>>>>> [hidden email]
>>>>>>>>>> Sent with ProtonMail Secure Email.
>>>>>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>>>>>> On Tuesday, April 16, 2019 5:34 PM, Maf. King [hidden email]
>>>>>>>>>> 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
>>>>>>>>>>>> [hidden email]
>>>>>>>>>>>> Sent with ProtonMail Secure Email.
>>>>>>>>>>>> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
>>>>>>>>>>>> On Tuesday, April 16, 2019 4:42 PM, Maf. King [hidden email]
>>>>>>>>>>>> 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. King
>>>>>>>>>>> PGP Key fingerprint = 8D68 A91F 733B 2C1F 43B7 2B7C E591 E8E1 0DE7
>>>>>>>>>>> C542
>>>>>>>>>
>>>>>>>>>> gnucash-user mailing list
>>>>>>>>>> [hidden email]
>>>>>>>>>> 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-devel mailing list
>>>>>>> [hidden email]
>>>>>>> https://lists.gnucash.org/mailman/listinfo/gnucash-devel
>
>

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Re: [GNC-dev] [GNC] Recording dividend payoffs

Phil Diacono
I agree with Justin. Other than "this is how it works" or "here's a
workaround",
I don't believe I've seen an argument challenging his proposal. Can I
encourage you to consider this approach for a future release?

Am I correct in thinking that the other category that drains retained
earnings
is capital expenditure?

Phil Diacono

-

> 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




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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2

If Justin's proposal refers to
> 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

There's no reason to challenge it. Nothing in GnuCash prevents you from doing that.

Regards,
John Ralls


> On Apr 16, 2019, at 4:59 PM, Phil Diacono <[hidden email]> wrote:
>
> I agree with Justin. Other than "this is how it works" or "here's a
> workaround",
> I don't believe I've seen an argument challenging his proposal. Can I
> encourage you to consider this approach for a future release?
>
> Am I correct in thinking that the other category that drains retained
> earnings
> is capital expenditure?
>
> Phil Diacono
>
> -
>> 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
>
>
>
>
> --
> Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-Dev-f1435356.html
> _______________________________________________
> gnucash-devel mailing list
> [hidden email]
> https://lists.gnucash.org/mailman/listinfo/gnucash-devel

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Re: [GNC-dev] [GNC] Recording dividend payoffs

Frank H. Ellenberger-3
In reply to this post by John Ralls-2
John,

the issue is not about reports or accounts, but the term "retained
earnings". While for the "normal" private user (and our original
programmers) it may be seen as synonym for "net income", for business
users it is more specific: The amount of the net income, which is for
several reasons (juristic, ...) transferred to the next period.

Example: There is a pending discussion with a client about the quality
of our sold product. He claims his money back.

IMHO we should rename, what currently is called "retained earnings" in
GnuCash to "net income". I have no specific opinion about the  account
names in our english and norsk templates .


My estimation is based on
https://dict.leo.org/englisch-deutsch/retained%20earnings

https://en.wikipedia.org/wiki/Retained_earnings: The retained earnings
of a corporation is the accumulated net income of the corporation that
is retained by the corporation at a particular point of time, such as at
the end of the reporting period. ...

https://dictionary.cambridge.org/de/worterbuch/englisch/retained-earnings:
the part of a company’s profit in a particular period that it decides to
keep, rather than paying it to shareholders as a dividend

Regards
Frank

Am 17.04.19 um 01:24 schrieb John Ralls:

> 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.
>
> Regards,
> John Ralls
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Re: [GNC-dev] [GNC] Recording dividend payoffs

GnuCash - Dev mailing list
Just to add to it,

> https://en.wikipedia.org/wiki/Retained_earnings: The retained earnings
> of a corporation is the accumulated net income of the corporation that
> is retained by the corporation at a particular point of time, such as at
> the end of the reporting period. ...
>
> https://dictionary.cambridge.org/de/worterbuch/englisch/retained-earnings:
> the part of a company’s profit in a particular period that it decides to
> keep, rather than paying it to shareholders as a dividend

And at some point if dividends are paid to shareholders, the retained earning should account for that as well.

Many at time, small businesses pay dividends as a method of steady income to shareholders. They don't divide the entire profit though. Hence the business will still have retained earnings after dividends.

-
Regards,
Justin Mathew
[hidden email]

Sent with ProtonMail Secure Email.

‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
On Wednesday, April 17, 2019 8:37 PM, Frank H. Ellenberger <[hidden email]> wrote:

> John,
>
> the issue is not about reports or accounts, but the term "retained
> earnings". While for the "normal" private user (and our original
> programmers) it may be seen as synonym for "net income", for business
> users it is more specific: The amount of the net income, which is for
> several reasons (juristic, ...) transferred to the next period.
>
> Example: There is a pending discussion with a client about the quality
> of our sold product. He claims his money back.
>
> IMHO we should rename, what currently is called "retained earnings" in
> GnuCash to "net income". I have no specific opinion about the account
> names in our english and norsk templates .
>
> My estimation is based on
> https://dict.leo.org/englisch-deutsch/retained earnings
>
> https://en.wikipedia.org/wiki/Retained_earnings: The retained earnings
> of a corporation is the accumulated net income of the corporation that
> is retained by the corporation at a particular point of time, such as at
> the end of the reporting period. ...
>
> https://dictionary.cambridge.org/de/worterbuch/englisch/retained-earnings:
> the part of a company’s profit in a particular period that it decides to
> keep, rather than paying it to shareholders as a dividend
>
> Regards
> Frank
>
> Am 17.04.19 um 01:24 schrieb John Ralls:
>
> > 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.
> > Regards,
> > John Ralls


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Re: [GNC-dev] [GNC] Recording dividend payoffs

John Ralls-2
Frank and Justin,

The wikipedia article doesn't explain it very well. Here's a better one:
https://www.investopedia.com/ask/answers/070615/what-difference-between-earnings-and-income.asp. "Net Income" is for this period, "Retained Earnings" is for the life of the entity. (Though note that under US GAAP nonprofits aren't supposed to have "retained earnings", https://www.nonprofitaccountingbasics.org/reporting-operations/statement-financial-activities. I suspect that the IFRS rules are similar.)

Another way to look at it is that there are (in the simple case) three sources for the assets of an entity: Liabilities represent money borrowed from others, Equity:Paid in Capital is the money provided by the investors or owners for part ownership of the entity, and retained earnings is the profit or loss made by the entity since its creation.

Dividends can dr (remember it's equity so dr *reduces* the balance) either paid in capital, in which case they're called capital dividends or return of capital, or earnings, called ordinary dividends. See https://www.investopedia.com/terms/c/capital-dividend.asp. As I said much earlier, in a formal system ordinary dividends will dr Retained Earnings.

The problem that Justin keeps banging on about is that he doesn't want to have a Retained Earnings account because that would mean that he has to close his book periodically to fund the account. That's fair, we tell people all the time that closing the books is optional in GnuCash. But without a Retained Earnings account, what to dr to balance the cr of assets to pay the dividend?
The GnuCash answer is an expense account, but Justin doesn't like that. He seems to want a special Equity contra-account for ordinary dividends--though he confused it with declared/authorized dividends which is a liability suspense account for the time between the board declaring the dividend and actually writing the checks and crediting the asset account--and he wants the Balance Sheet report to know about it and reduce the Retained Earnings line by the equity account value.

I don't think that there's a good reason to do that. GnuCash's declared "market" is individuals and sole proprietorships, neither of which pay dividends. It's pretty simple to create a dividends account of type expense that the Balance Sheet's retained earnings calculation will see, and to exclude that account from the Profit and Loss report so that It accurately states the period's operations. 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.

Regards,
John Ralls




> On Apr 17, 2019, at 9:03 AM, Justin Mathew <[hidden email]> wrote:
>
> Just to add to it,
>
>> https://en.wikipedia.org/wiki/Retained_earnings: The retained earnings
>> of a corporation is the accumulated net income of the corporation that
>> is retained by the corporation at a particular point of time, such as at
>> the end of the reporting period. ...
>>
>> https://dictionary.cambridge.org/de/worterbuch/englisch/retained-earnings:
>> the part of a company’s profit in a particular period that it decides to
>> keep, rather than paying it to shareholders as a dividend
>
> And at some point if dividends are paid to shareholders, the retained earning should account for that as well.
>
> Many at time, small businesses pay dividends as a method of steady income to shareholders. They don't divide the entire profit though. Hence the business will still have retained earnings after dividends.
>
> -
> Regards,
> Justin Mathew
> [hidden email]
>
> Sent with ProtonMail Secure Email.
>
> ‐‐‐‐‐‐‐ Original Message ‐‐‐‐‐‐‐
> On Wednesday, April 17, 2019 8:37 PM, Frank H. Ellenberger <[hidden email]> wrote:
>
>> John,
>>
>> the issue is not about reports or accounts, but the term "retained
>> earnings". While for the "normal" private user (and our original
>> programmers) it may be seen as synonym for "net income", for business
>> users it is more specific: The amount of the net income, which is for
>> several reasons (juristic, ...) transferred to the next period.
>>
>> Example: There is a pending discussion with a client about the quality
>> of our sold product. He claims his money back.
>>
>> IMHO we should rename, what currently is called "retained earnings" in
>> GnuCash to "net income". I have no specific opinion about the account
>> names in our english and norsk templates .
>>
>> My estimation is based on
>> https://dict.leo.org/englisch-deutsch/retained earnings
>>
>> https://en.wikipedia.org/wiki/Retained_earnings: The retained earnings
>> of a corporation is the accumulated net income of the corporation that
>> is retained by the corporation at a particular point of time, such as at
>> the end of the reporting period. ...
>>
>> https://dictionary.cambridge.org/de/worterbuch/englisch/retained-earnings:
>> the part of a company’s profit in a particular period that it decides to
>> keep, rather than paying it to shareholders as a dividend
>>
>> Regards
>> Frank
>>
>> Am 17.04.19 um 01:24 schrieb John Ralls:
>>
>>> 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.
>>> Regards,
>>> John Ralls

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Re: [GNC-dev] [GNC] Recording dividend payoffs

Frank H. Ellenberger-3
John,

Am 18.04.19 um 06:06 schrieb John Ralls:
> Frank and Justin,
>
> The wikipedia article doesn't explain it very well. Here's a better one:
> https://www.investopedia.com/ask/answers/070615/what-difference-between-earnings-and-income.asp. "Net Income" is for this period, "Retained Earnings" is for the life of the entity.

You are missing the *put aside or saved for future use*.

> (Though note that under US GAAP nonprofits aren't supposed to have "retained earnings", https://www.nonprofitaccountingbasics.org/reporting-operations/statement-financial-activities. I suspect that the IFRS rules are similar.)

So why are we using in our reports a legal termin, which is not
applicable for most users?

> Another way to look at it is that there are (in the simple case) three sources for the assets of an entity: Liabilities represent money borrowed from others, Equity:Paid in Capital is the money provided by the investors or owners for part ownership of the entity, and retained earnings is the profit or loss made by the entity since its creation.
>
> Dividends can dr (remember it's equity so dr *reduces* the balance) either paid in capital, in which case they're called capital dividends or return of capital, or earnings, called ordinary dividends. See https://www.investopedia.com/terms/c/capital-dividend.asp. As I said much earlier, in a formal system ordinary dividends will dr Retained Earnings.
>
> The problem that Justin keeps banging on about is that he doesn't want to have a Retained Earnings account because that would mean that he has to close his book periodically to fund the account. That's fair, we tell people all the time that closing the books is optional in GnuCash.

Not closing the book might be be fine for pure personal reporting.
Already if you start
preparing the tax declaration, depending on your legislation, you  may
be forced to enter adjustment entries (splits in tax free and taxable
amounts, depreciation, ...). So from my feeling it was always better to
do a full manual closing of the book according local law. In the
german business templates ~1/10 of
all accounts are related to the closing book process.

> But without a Retained Earnings account, what to dr to balance the cr of assets to pay the dividend?
> The GnuCash answer is an expense account, but Justin doesn't like that. He seems to want a special Equity contra-account for ordinary dividends--though he confused it with declared/authorized dividends which is a liability suspense account for the time between the board declaring the dividend and actually writing the checks and crediting the asset account--and he wants the Balance Sheet report to know about it and reduce the Retained Earnings line by the equity account value.

The issue here seems that in C the common template tries to be for both,
private and business users. For other, mostly european countries we have
separate templates for business users, based on the requirements of the
government or other authoritative organizations.

Probably something similar exists for the US?

> I don't think that there's a good reason to do that. GnuCash's declared "market" is individuals and sole proprietorships, neither of which pay dividends.

I think the legal form does not matter. Also people sharing a flat might
decide to set some "profit" aside for renovation or a new energy
efficient refrigator (= retained earnings) and pay back the other part
(of their "net income") like a dividend.

> It's pretty simple to create a dividends account of type expense that the Balance Sheet's retained earnings calculation will see, and to exclude that account from the Profit and Loss report so that It accurately states the period's operations. 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.
>
> Regards,
> John Ralls
>

Regards,
Frank
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