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Closing out Owner Investment and Distribution at end of year.

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I closed the books on the first of the year, and net income was automatically moved to retained earnings as expected on the balance sheet.

It still shows a positive balance in owner's investment and negatives in each of the partner distribution accounts. My thought process was to close these accounts out to retained earnings to get a clear view of the current year. Are there any problems with doing this?

Just to clarify, we are a 2 person LLC filing as S-Corp. The balance in owners investment is 50/50 start up money for the business, and the distributions taken are of equal amount taken at the same time.

Any help or thoughts on this are much appreciated!

QuickBooks Online

RustlerAnswer

you close the drawing and investment as well as the retained earnings account to partner equity with journal entries

debit investment, credit equity
debit equity, credit drawing

debit RE, credit equity for the partner share

RustlerAnswer

you close the drawing and investment as well as the retained earnings account to partner equity with journal entries

debit investment, credit equity
debit equity, credit drawing

debit RE, credit equity for the partner share

G

GreeneWrenchAuthor

Thank you Rustler!

My Chart of accounts only has the following accounts for equity:

Opening Balance Equity

Owner's Investment

Owner's Pay and Personal Expenses

- Partner Distributions (Sub a/c 1)

- Partner Distributions (Sub a/c 2)

Retained Earnings

I'll add a new Owner's Equity account and do the journal entries to move everything over. This makes more sense to keep everything in order and easy to see. We only started September 2018, so lots of learning points getting into the swing of things. Planning to close out each 4 week period starting this year so I should have this down pat in no time!

Rustler

Partners have equity in the business too or they can't be partners, when someone joins as a partner they bring something to the mix, expertise valued at some amount, cash, equipment, something.

For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), I recommend you have the following for owner/partner equity accounts (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

R

rpbfinancial

I'm not sure why partners are being talked about in the reply since you said it is an S-Corp?

P

patfaith

It states that it is a 2 person LLC FILING as an S-Corp.

S

SanDiego

If retained earnings are negative do we still debit them to partner equity?

K

kattqtt

Do we also need to close prior distributions if it's Sole Proprietorship (1040)?? I do know of s-corp we have to close out prior dist against retained earnings.. not sure if it's the same for sole proprietor / single member LLC. Please advise. Thanks in advance!

Rainflurry

@kattqtt

A sole proprietorship (SP) doesn't have distributions, technically. They have draws. SPs only need one equity account - Owner's Capital. Some people use Owner's Equity and some use Owner's Draw/Owner's Contributions. They all can all be closed to Owner's Capital.

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