How do you categorize dividends vs wages?

[Kent R. Spillner]

Hi, ledger friends-

Happy Mother's Day!

I realize this is an Accounting 101 question and not ledger-specific, but for the people on this list using ledger to manage their own business: how do you categorize dividends vs wages? Are they technically considered expenses or liabilities?

I track W2 wages as Expenses:Acme:Pay:Alice and dividends as Expenses:Acme:Pay:Dividend:Bob. It seems to be working fine for my wife's business since I started using ledger back in February, but I wonder if there's a better way?

Should payroll for each employee be modeled as something like a debit to Liability:Acme:Salary:Alice and a credit to Expense:Acme:Accounts Payable:Alice:Salary? Should dividends be a debit to Equity:Acme:Owners:Bob?

Also, how do you track payroll taxes? In the US employers are required to automatically withhold a percentage of an employee's wages and pay taxes with that money on the employee's behalf, and additionally there are other taxes that are the emplyer's responsibility. I'm just tracking them as separate expense accounts, but I feel like professional accountants probably have a better method. (Apologies to int'l readers if this is too US-specific)

For what it's worth, I've mostly been re-reading this section of the manual for inspiration: https://www.ledger-cli.org/3.0/doc/ledger3.html#Tracking-reimbursable-expenses. If there are other good sources of information for these types of things I'd appreciate pointers (I've bookmarked the Software Freedom Conservancy tutorials from plaintextaccounting.org but haven't gotten around to reading them yet; are they applicable to for-profit business entities as well?).

I'm curious to hear how other people handle these issues in their ledgers.

Thanks in advance!

Best,
Kent

[Klauss Hass]

> On 10 May 2020, at 19:05, Kent R. Spillner <kspi...@acm.org> wrote:
>
> Hi, ledger friends-
>
> Happy Mother's Day!
>
> I realize this is an Accounting 101 question and not ledger-specific, but for the people on this list using ledger to manage their own business: how do you categorize dividends vs wages? Are they technically considered expenses or liabilities?

Wages are categorized as expenses in the P&L report, dividends appear as outflows only on the cash flow reports. I put it under investing cash flows but an outflow as operational cash flow can be also accepted.

>
> I track W2 wages as Expenses:Acme:Pay:Alice and dividends as Expenses:Acme:Pay:Dividend:Bob. It seems to be working fine for my wife's business since I started using ledger back in February, but I wonder if there's a better way?

The problem of categorizing dividends paid to partners is that it’s usually not an operational expense. If your business isn’t profitable you will probably not be getting dividends.

If you work in the company you own you should only expense that way the fixed pay that the company pays you monthly. I’m not sure ledger if able to do it, but at a fixed interval the accrued profit for the period should go to an equity account like Equity:Retained Earnings

When the dividend is effectively paid you have a debit on the equity:Retained Earnings and a credit on the assets:cash. So the value of the company is transferred to the partners assets.

I’m not sure ledger can transfer the effective period profit to another account, it’s called zeroing the account. John can probably answer it better though

>
> Should payroll for each employee be modeled as something like a debit to Liability:Acme:Salary:Alice and a credit to Expense:Acme:Accounts Payable:Alice:Salary? Should dividends be a debit to Equity:Acme:Owners:Bob?

You should debt your asset:cash and credit the expense when the salary is paid. You can create a provision for future employee expense if that is the case there.
For instance, if you pay a Christmas bonus for employees that is accrued monthly you should debit Expenses:Acme:Alice:Bonus and credit Liabilities:Wages:Alice:Bonus

When the bonus is paid you just reverse it with a credit on assets:cash and a debit on Libilities:Wages:Alice:Bonus

>
> Also, how do you track payroll taxes? In the US employers are required to automatically withhold a percentage of an employee's wages and pay taxes with that money on the employee's behalf, and additionally there are other taxes that are the emplyer's responsibility. I'm just tracking them as separate expense accounts, but I feel like professional accountants probably have a better method. (Apologies to int'l readers if this is too US-specific)

I prefer to create an account for each employee and categorize sub expenses for the respective employee. If it’s an overhead indirect cost it’s categorized in another account.

>
> For what it's worth, I've mostly been re-reading this section of the manual for inspiration: https://www.ledger-cli.org/3.0/doc/ledger3.html#Tracking-reimbursable-expenses. If there are other good sources of information for these types of things I'd appreciate pointers (I've bookmarked the Software Freedom Conservancy tutorials from plaintextaccounting.org but haven't gotten around to reading them yet; are they applicable to for-profit business entities as well?).

What I really couldn’t find so far is a proper emacs tutorial. I mostly use spacemacs / doom emacs to edit ledger files but I can’t say for sure I understand how they work.

Maybe the ledger-mode files can help you.

>
> I'm curious to hear how other people handle these issues in their ledgers.
>
> Thanks in advance!
>
> Best,
> Kent
>
>

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[psionl0]

Wages are a tax deductible expense but dividends are not. So I make dividends a sub-category of "equity". Note that there is no need to include the payee name in either the wage or dividend payment names since you can use the payee name to filter your reports.

Typical entries might be:
2020/05/11 Johnny Smith
   Expenses:Wages             $ 500.00
   Liabilities:Tax Deducted   $ -90.00
   Bank:Checking Account     $ -410.00

2020/05/11 Ima Owner
   Equity:Dividends           $ 250.00
   Bank:Checking Account     $ -250.00

To check Johnny Smith's wage payments you simply need something like

ledger -f file.dat reg Wages and @"Johnny Smith" -b 2020/01/01

You can get a summary of all of the transactions for Johnny Smith in the usual way:

ledger -f file.dat bal @"Johnny Smith" -b 2020/01/01

Ditto for checking Ima Owner's dividend payments.