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nathan14
March 8, 2020
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Why does the amount in Owner's Equity go up instead of down when I call a deposit from another account, a transfer from Owner's Equity?

  • March 8, 2020
  • 2 replies
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Best answer by john-pero

A deposit into the business is income or increased equity. It is only decreased equity when the owner withdraws money to personal use. Owner injection = increased equity. Sounds like it is working correctly

2 replies

john-pero
john-peroAnswer
March 9, 2020

A deposit into the business is income or increased equity. It is only decreased equity when the owner withdraws money to personal use. Owner injection = increased equity. Sounds like it is working correctly

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    nathan14Author
    March 9, 2020

    So, I move money from my personal bank account to PayPal. That increases the amount in PayPal AND Owner's Equity?

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    dqm
    February 11, 2021

    If the personal bank account and the paypal account are both in the same QB company, moving funds between them does NOT increase owners equity.  That only happens if you are introducing new funds to the QB company.  For example, a Paypal deposit could be made from an owners equity account and, just like revenue, both accounts would increase. That said, it's more typical for the FROM side of a Paypal deposit to be a revenue account, which increases owners equity indirectly through Net Income.

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    dqm
    February 11, 2021

    I've observed that if you DEPOSIT funds to a bank account FROM owners equity, both accounts increase.  That's to be expected and reflects an investment in the company rather than posting FROM income (which represents revenue and increases owners equity indirectly).

     

    However, if you transfer funds between owners equity accounts (using the TRANSFER function), the FROM account increases and the TO account decreases.  Like transferring a negative amount. That's counter-intuitive and causes mistakes.  Mistakes that are difficult to notice in the case of Retained Earnings or Owner's Equity, because the balances of those accounts are derived and their balances not readily visible.

     

    BTW, liability accounts understandably suffer from the same quirk: transfer from a liability increases it's balance.

     

    I suppose that you could argue that, since FROM owners equity means an increase for a DEPOSIT, it should also mean an increase for a TRANSFER.   But a better experience is needed.

     

    Perhaps the TRANSFER form should not be allowed for credit balance accounts (use JE instead)

    Or, when a TRANSFER is attempted from/to an equity or liability, a warning explaining the effect on the account balance could be issued.

    Or, when the amount is entered, reflect the change in balances on the form or a popup before the save button is pressed.

    Or???

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