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Jfunk
Dec 17, 2018 1:42 PM UTC
Solved

Owner's Contribution and Draw

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! 

Rustler
RustlerAnswer
Dec 17, 2018 4:21 PM UTC

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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7 replies

Rustler
Rustler
Dec 17, 2018 2:24 PM UTC

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

 

 

    JfunkAuthor
    Dec 17, 2018 4:08 PM UTC

    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
    Dec 17, 2018 4:21 PM UTC

    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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