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J
Jfunk
December 17, 2018
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Owner's Contribution and Draw

  • December 17, 2018
  • 1 reply
  • 0 views

Hi Everyone, 

 

Single member LLC using QB Mac 2019. 

 

It's closing in on the end of the year and I need clarity on this topic. 

 

I have an "owner's contribution equity account" which I invested $20K from my personal savings account (already paid taxes on the money). 

 

I also have an owner's draw equity account set up. 

 

The business has made enough to where I can pay my savings account back this year. 

 

Do I just record this as a simple draw for the full amount? 

 

 

Thanks! 

Best answer by Rustler

the idea is to get all of last years equity activity into equity

 

so you clear investment to equity, debit investment for the balance in the investment account & credit equity

then you clear drawing to equity, debit equity and credit drawing for the balance in the drawing account

 

ie

lets say it looks like this

[name] equity
>> equity 25,000

>>equity drawing 10,000

>>equity investment 12,500

 

journal entry

equity investment, debit 12,500
equity, credit 12,500

 

now the accounts look like

[name] equity
>> equity 37,500

>>equity drawing 10,000

>>equity investment 0

 

journal entry

debit equity, 10,000

credit equity drawing 10,000

 

now the accounts look like

[name] equity
>> equity 27,500

>>equity drawing 0

>>equity investment 0

1 reply

Rustler
Rustler
December 17, 2018

I suggest that after the first of the year, and after any income tax adjustments are made, you:

 

1. clear equity drawing to equity, debit equity & credit drawing for the amount in drawing

2. clear equity investment to equity,  debit investment for the amount in the account, & debit equity investment

 

then if you want money out, cut a check and use equity drawing as the expense (reason) for the check

 

you can do that at any time, but I think it is cleaner to start the new year with equity investment and drawing at zero for the new year

 

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

 

 

    J
    JfunkAuthor
    December 17, 2018

    Thanks, Rustler. 

     

    I like the idea of starting the year fresh, you answered a question without me asking it! 

     

    I just remained the accounts to:

    Owner's Equity 

    >> Equity
    >> Equity Drawing
    >> Equity Investment 

     

    If I understand 1 & 2 correctly, and did you mean credit here --> "2. clear equity investment to equity,  debit investment for the amount in the account, & debit equity investment"

     

    I just do a journal entry for drawing and investments to move the money to equity. Assuming the "equality" account will always show past and current year totals.   

     

     

    Rustler
    RustlerAnswer
    December 17, 2018

    the idea is to get all of last years equity activity into equity

     

    so you clear investment to equity, debit investment for the balance in the investment account & credit equity

    then you clear drawing to equity, debit equity and credit drawing for the balance in the drawing account

     

    ie

    lets say it looks like this

    [name] equity
    >> equity 25,000

    >>equity drawing 10,000

    >>equity investment 12,500

     

    journal entry

    equity investment, debit 12,500
    equity, credit 12,500

     

    now the accounts look like

    [name] equity
    >> equity 37,500

    >>equity drawing 10,000

    >>equity investment 0

     

    journal entry

    debit equity, 10,000

    credit equity drawing 10,000

     

    now the accounts look like

    [name] equity
    >> equity 27,500

    >>equity drawing 0

    >>equity investment 0

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