Hey guys,
Getting my head around trust structures. In the Accounting books what are the entries for the distribution at the end of the financial year? I know they are paper entries but I'd like to see what the double entries look like. Can't seem to find an example in my books or online.
When its a company the profit gets closed off to owners equity right via a general journal entry?
Thanks
jxuereb wrote:Hey guys,Getting my head around trust structures. In the Accounting books what are the entries for the distribution at the end of the financial year? I know they are paper entries but I'd like to see what the double entries look like. Can't seem to find an example in my books or online.
When its a company the profit gets closed off to owners equity right via a general journal entry?
Thanks
Instead of going to owners equity, the distribution goes against the respective beneficiary accounts to which the distribution is made. However, you have to be careful that the accounting and tax distributions are made in accordance with the trust distribution resolution and the trust deed. Case law supports a "proportionate approach" when there is a difference between taxable and accounting income. Hope that help!
Eddie
[email protected]That helps Eddie. Couldn't find an example in my book.
So the profit and loss account gets closed off the toe beneficiary accounts.
When the trustee actually pays the distribution in real cash theres a reduction in cash at bank and a reduction in the respective beneficiary accounts.
Also the beneficiary will need to pay personal income tax on the amount of their distribution.
I think you've got the idea.
1. P&L gets closed off to the beneficiary accounts as "share of profit", based on how the amounts have been distributed to each beneficiary.
2. When real cash is paid, the payment will simply be coded to the beneficiary accounts as "drawings".
Each beneficiary will pay tax on their share of the taxable income of the trust. Be careful because the taxable income of the trust may not always be the accounting profit of the trust.
Eddie
[email protected]Cheers Eddie it all makes sense.
Hi All,
I was reading the Trust Distribution conversation above with Jxuereb &Eddiec as informational source & wonder if he or any body else could expand on this as this is a new area for me also.
Issue is the profit was distributed to beneficiary's but the drawings are yet to be realised in the next financial period I have put my questions in brackets below.Eddiec – you said – 1. P&L gets closed off to the beneficiary accounts as "share of profit", based on how the amounts have been distributed to each beneficiary.
(done)
2. When real cash is paid, the payment will simply be coded to the beneficiary accounts as "drawings".
(Have coded distributions to Drawings A/c, does it matter that cash is not paid until next period?)
Each beneficiary will pay tax on their share of the taxable income of the trust. Be careful because the taxable income of the trust may not always be the accounting profit of the trust.
(can we turn this undistributed cash above from 09 period into equity instead) by way of subordinated loan type scenario)
generally it's a credit to beneficiary loan accounts (but these should be called "unpaid beneficiary entitlements" to avoid being deemed loans (but that's another issue altogether) and a debit to trust distributions paid. depending on what software you use, the debit entry will vary. the bottom line is – you are aiming to reflect the accounting profit as distributed to the beneficiaries as trusts do not show retained profits like a company does. remember, the trustee is taxed on any undistributed profits at the highest marginal rate.
the accounting entries always reflect the distribution of accounting profit. your taxable distribution is what is distributed in the tax return and what the beneficiaries are taxed on. and yes, a proportional approach is recommended.
hope that helps
Eve
Tax Accountant
generally it's a credit to beneficiary loan accounts (but these should be called "unpaid beneficiary entitlements" to avoid being deemed loans (but that's another issue altogether) and a debit to trust distributions paid. depending on what software you use, the debit entry will vary. the bottom line is – you are aiming to reflect the accounting profit as distributed to the beneficiaries as trusts do not show retained profits like a company does. remember, the trustee is taxed on any undistributed profits at the highest marginal rate.
the accounting entries always reflect the distribution of accounting profit. your taxable distribution is what is distributed in the tax return and what the beneficiaries are taxed on. and yes, a proportional approach is recommended.
hope that helps
Eve
Tax Accountant
Busy – when t he actual cash is paid, the entry is DR Drawings and CR Cash
I don't know why you would be coding beneficiaries share of profit to drawings, it should be allocated to a "Share of Net profit" account. I guess either way, it'll increase the beneficiary entitlements but technically, only draw-downs of the beneficiary entitlements should be coded to drawings.
Busy – when t he actual cash is paid, the entry is DR Drawings and CR Cash
I don't know why you would be coding beneficiaries share of profit to drawings, it should be allocated to a "Share of Net profit" account. I guess either way, it'll increase the beneficiary entitlements but technically, only draw-downs of the beneficiary entitlements should be coded to drawings.
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