Have a nice day all,
i want to make a condition
i want to give 5% of my monthly profit to charity and i want that appear in the Liabilities automatically every month, can any one guide me.
Regards.
You will have to calculate this manually and then enter a journal entry to debit an expense account and credit a liability account
ok, thanks for your fast response.
That’s not correct accounting, @Joe91. Think about it. Net profit is already determined from income and actual expenses. All @Mohamed_Atef wants to do is dedicate a portion of the profit for future contribution to charity. There is neither a real expense nor an actual liability established by this desire. So such a journal entry would understate net income and distort the balance sheet.
I believe the correct journal entry would debit Retained earnings and credit an equity account set up for this purpose. In reality, though, there is no accounting purpose for such a transaction. All you would be doing is artificially segregating a portion of Retained earnings. It would be just as easy to calculate the desired contribution from the net profit on the P&L Statement at the end of a period and enter a payment, allocating the payment directly to Retained earnings. In effect, that would be like distributing earnings to capital account owners or making an owner’s draw; only the recipient of funds is different.
Things would be different if @Mohamed_Atef is allowed by local law to make deductible charitable contributions as business expenses. Then, a payment is still the most direct approach, but allocated to a Charitable contributions expense account.
But a liability would never be appropriate, as the business does not owe anything to any outside entity. It’s owner/manager merely desires to donate to charity a percentage of profit.
1 Like
OK, I see that the liability account is not a good account to use, but he can always make a charitable donation and post it as an expense or payment.
Whether it is taxable or not is a different issue altogether and does not affect the decision to make a donation
That is true in one sense. But the expense should be posted only if it has actually occurred, or it will just have to be reversed. A relevant example is business meal expenses, which are real expenses but are only partially deductible in some jurisdictions. In @Mohamed_Atef’s case, there is no real business expense unless the charitable contribution is deductible by the business, only a discretionary distribution of profit. If the charitable contribution is only deductible by the owner, the payment to the charity should not be on the books of the business at all.
@Tut
Thank you sir for your replies.
so you confirm that there is no any way to do a logic states in the manager io like if (condition) do (result) automatically, like if profit more than 500$ by month, put in employee account 1% of profit as Bonus to them.
so i should do it manual by getting the P and L report to calculate the profit per month then do journal entry
Regards.
Regards.
That is correct. Accounting is about recording what has happened, not automatically taking action without your involvement.
That is not what I said. I said the type of journal entries you describe would have no accounting purpose and recommended that everything you want to do should be handled only with payments.