Business accounting and and equity “drawings”

[Anders Lindstrom]

I’ve only just started using beancount and I really like it.

I have a question about how to model equity withdrawals. That is, if I run a business then, on occasion, I withdraw equity from the business. The terminology used here depends on the business type: “drawings”, (

https://www.accountingcapital.com/basic-accounting/drawings/), “partner drawings” and “dividends” are used depending on the context.

It seems that beancount doesn’t explicitly have this concept. It has account types Assets, Liabilities, Income, Expenses and Equity but not Drawings.

I understand why this is so. It looks to me like beancount is targeted at personal finance where drawings aren’t really relevant.

For my purposes, I have tried using Expense:Drawings as a workaround and it seems to do what I need for now. However, in accounting, drawings are considered to be their own top-level type (

https://www.accountingtools.com/articles/are-dividends-considered-an-expense.html). I see that someone else has used Equity:Drawings instead (

https://groups.google.com/g/beancount/c/ItnftyBIJzs/m/-q646QBjBQAJ).

So my question is whether anyone else has had a need to deal with drawings and what pros and cons are associated with their approach.

Anders.

[Chary Chary]

I am not an accountant, but is my understanding, that everything which comes to business from owner or gets withdraw goes through equity

Something like this:

2000-01-01 open Equity:Initial-inverstments

2000-01-01 open Equity:Drawings

2000-02-01 * "Initial investment in business"

    Equity:Initial-inverstments  -10000.00 USD

    Assets:Bank:Checking          10000.00 USD

2000-03-01 * "Withdrawing from business"

    Equity:Drawings             5000.00 USD

    Assets:Bank:Checking        -5000.00 USD

Or may be even simpler, 

2000-01-01 open Equity:Inverstments-and-drawings

2000-02-01 * "Initial investment in business"

    Equity:Inverstments-and-drawings  -10000.00 USD

    Assets:Bank:Checking                10000.00 USD

2000-03-01 * "Withdrawing from business"

    Equity:Inverstments-and-drawings     5000.00 USD

    Assets:Bank:Checking                -5000.00 USD

And then you can distinguish investments from drawings by their sign

E.g.: for investments:

select date, narration, cost(position) as value

where account ~ ''Equity:Inverstments-and-drawings' and value <=0

something like this

[Chary Chary]

sorry,

for the 2nd case the following is the right query

select date, narration, cost(position) where account ~ 'Equity:Inverstments-and-drawings' and number <0 

[Anders Lindstrom]

Yes. You're right that it should come from equity.  Actually, this article confirms it:

    Dividends are not considered an expense, because they are a distribution of a firm’s accumulated earnings.

    For this reason, dividends never appear on an issuing entity's income statement as an expense. Instead,

    dividends are treated as a distribution of the equity of a business.

    When dividends are paid in cash, they are subtracted from the equity section of the balance sheet and are

    also subtracted from the cash line item in the balance sheet, resulting in an overall decline in the size of the balance sheet.

Somehow this didn't sink in the first time I read it.

As to whether it's better to have a single Equity:Investments account or a separate Equity:Drawings, I'll have to try both approaches to see which works better.

Thanks for the help. It's very much appreciated.

Anders.

[Chary Chary]

Anders,

you are welcome.

Actually your question made me wonder whether I now have to use Equity:Drawing to handle goods separation during the divorce with my ex, at the moment they are handled as expenses, but this is probably not correct.