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Re: Yearend Transactions


Based on your replies to my email,  I will try to answer the questions raised in your original email.

Using your quote from Dieter:

"" A yearend may be run at any time, it does not affect any transactions nor does it remove transactions. A special GL Journal entry is generated offsetting income and expense accounts to zero. The difference is posted to a retained earnings account of your choice. You will also have to edit this GL Journal entry to record dividends, tax payments and adjust retained earnings accordingly."

This statement is correct as to its description of the mechanics involved in closing the books.  That is, the action described is done at year-end (not at month-end or some other intermediate time period).  The purpose is to close (empty) the revenue and expense accounts so that they become ready (that is, carry zero balances) to carry the activity of the next major reporting period (the next financial year, either calendar or fiscal).  The net result of offsetting all revenue and expense accounts is to determine a gain (excess of revenues over expenses) or loss (excess of expenses over revenues) for the time period.  That net number increases or decreases retained earnings.

Dieter's next statement is problematic.  In the US in books kept according to GAAP in the case of for-profit entities, there essentially is just one retained earnings account.  I am not familiar with his software in detail, so it may be that he permits multiple RE accounts, otherwise I don't understand his phrase "retained earnings account of your choice".

His last statement seems to me to be non-standard accounting technique.  That is, accountants following good form usually provide separate entries for separate activities.  Thus  closing the books is one, recording dividends is another, and tax payments would be yet a third or more (federal and state being different calculations).


"Equity drawing/dividend accounts are also moved, but the investment accounts are not."
Further down the page it says:
"It does not move the drawing account, and this must be done manually, nor does it automate the process of making adjustments."

Is this talking about two separate types of drawing account?
(I'm using the US Service COA here--what does it consider the "drawing account" and "drawing accounts" in these two statements to be?)

My question is: what else do I have to do, other than running the yearend?

I am familiar with the term "drawing account" principally in regard to partnerships and not corporations.  The "drawing" refers to recording withdrawals of cash to the benefit of the recipient.  This usually is done according to the terms of a partnership agreement that spells out the extent to which all partners consider this appropriate and when it is permitted to occur.

Elsewhere in the emails I have seen connected with LSMB someone described the normal activity connected with declaring and paying dividends.  These do not get wound into Retained Earnings and the year-end close.  The declaration of a dividend sets up (increases) a liability account for dividends payable and reduces equity for the amount of the liability.  Payment reduces liability and cash.

To answer your question what do you do, for year-end there is no impact.  If the declaration and payment of dividend occurs near or effective on year-end, your activity is based on the terms and instructions of the Board directives.  It is coincidental that it occurs at year end and should not be regarded as integrated into that process.

Hope this makes things a little clearer for you.  


-----Original Message-----
From: Luke [mailto:..hidden.. 
Sent: Monday, April 26, 2010 1:02 AM
To: ..hidden..
Subject: Re: [Ledger-smb-users] Yearend Transactions

On Sun, 25 Apr 2010, Tom Bullock wrote:

> Your questions are important ones.  The sources you quote assume a
> certain amount of basic accounting knowledge in the areas that your
> questions reflect.  Because you seem not to have that knowledge at the
> moment, the instructions assuming same are opaque to you.

I am a programmer, not an accountant.  So, my knowledge on that subject 
expands on an as-needed basis.  Years ago it was double entry and such; 
today it is yearends.
(Because, in all my years of using SL/LSMB, I have not actually needed 
them for several different reasons irrelevant to this discussion)

  > Because there are different accounting systems part of the answer to
> your question would be to know are you running your system according to
> the laws of any of these countries: UK, EU, Australia, New Zealand, USA,
> others?

As I said, It's on the US service company COA.  I should have added that 
It is operating under U.S. corporate tax law (form 1120, that is).

> Since you state that you are keeping records on a cash basis, you will
> not be seeming to use accounting techniques required by GAAP (generally
> accepted accounting principles).

Not the case at all.  I would have preferred not to use cash, but my 
accountant says that for a service company, cash is better when that 
election is possible.  I could in theory run the books on accrual, and 
reports to him on cash, but for the sake of consistency, I thought it 
better to maintain the books in the same way that everything not in the 
books is done.

> or for what purpose: government reports, banking loan requests, etc.  I
> assume from your question that you are tracking personal expenditures
> for family/personal activities.

I am not sure why you would assume that, but it is not the case.  This 
particular application is for a standard corporation (I.E. not sub S).  As 
for what purpose: accurate books and cashflow tracking, which will lead to 
proper information for tax and other reports.

To avoid double taxation, dividends to stockholders are not being paid, so 
that aspect of the information is not strictly relevant, although 

Properly handling retained earnings and equity is very much relevant.



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