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jdmarlow2
January 2, 2024
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S-Corp, Equity, and P&Ls

  • January 2, 2024
  • 1 reply
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Hi all,

Long time Quickbooks user but I've just recently set up an S-Corp for myself and trying to get a handle on how to manage things now.  I'm a single member LLC with an S-election (so an S-Corp for tax purposes).  It's just me -- no employees, so essentially a pass-thru.  I invoice my clients, payment comes in, and I pay myself a "reasonable salary" once a month through ADP.  Then I take distributions every month on top of that.  Simple enough.

 

What I've struggled with is how to actually set this up properly in Quickbooks.  I have set up new EQUITY accounts for Shareholder Capital and Shareholder Distribution for the S-Corp.  The money I invoice for goes directly into Shareholder Capital (EQUITY account) and any time I take a distribution to my personal bank account that runs from the Shareholder Distribution (EQUITY account).  But when I run P&Ls the income that is coming into the S-Corp does not show up anywhere (because it's equity, not income), so I'm not really getting a helpful picture of things from that report.  Similarly, I'm not really sure the best way to easily produce a simple report that shows the taxable net income from the business (Gross Income - Salary - Other Business Expenses).

 

In the past when I was just a Sole Proprietor I would classify 1099 income in it's own separate income account and create custom reports that showed that income minus business expenses for a net on my Schedule C.  But the Equity part of the S-Corp set up is throwing me off.  Do I need to have the S-Corp invoices hit an Income account before that pass to the Shareholder Capital?  Any help is welcome.  Thank you.

Best answer by abid Hussain

When managing an S-Corp in QuickBooks Online (QBO), it's important to set up your accounts properly to reflect the financial transactions accurately. Here's a recommended approach:

  1. Income Account:

    • Create an income account specifically for the S-Corp's revenue. This income account will be used to record your invoiced amounts.

  2. Equity Accounts:

    • Maintain the Shareholder Capital and Shareholder Distribution equity accounts as you've set up.

  3. Expenses:

    • Set up expense accounts to categorize your business expenses.

Now, let's walk through the process:

  • Invoice Entry:

    • When you receive payments from clients, use the income account created for the S-Corp's revenue.

  • Salary Payment:

    • Process the salary payments through your ADP service. This transaction would involve reducing the equity (Shareholder Capital) and recording the expense for salary.

  • Distribution:

    • For shareholder distributions, record transactions directly from the Shareholder Distribution equity account.

By setting up an income account, you'll be able to generate reports to see the revenue specific to the S-Corp. The equity accounts will track the flow of funds between the S-Corp and shareholders.

When running a Profit and Loss (P&L) report, the income from the specific income account, minus salary and other business expenses, will give you a clearer picture of the taxable net income for the S-Corp.

We are QBO Consultants and provide these services on a daily basis. 

1 reply

A
abid HussainAnswer
January 3, 2024

When managing an S-Corp in QuickBooks Online (QBO), it's important to set up your accounts properly to reflect the financial transactions accurately. Here's a recommended approach:

  1. Income Account:

    • Create an income account specifically for the S-Corp's revenue. This income account will be used to record your invoiced amounts.

  2. Equity Accounts:

    • Maintain the Shareholder Capital and Shareholder Distribution equity accounts as you've set up.

  3. Expenses:

    • Set up expense accounts to categorize your business expenses.

Now, let's walk through the process:

  • Invoice Entry:

    • When you receive payments from clients, use the income account created for the S-Corp's revenue.

  • Salary Payment:

    • Process the salary payments through your ADP service. This transaction would involve reducing the equity (Shareholder Capital) and recording the expense for salary.

  • Distribution:

    • For shareholder distributions, record transactions directly from the Shareholder Distribution equity account.

By setting up an income account, you'll be able to generate reports to see the revenue specific to the S-Corp. The equity accounts will track the flow of funds between the S-Corp and shareholders.

When running a Profit and Loss (P&L) report, the income from the specific income account, minus salary and other business expenses, will give you a clearer picture of the taxable net income for the S-Corp.

We are QBO Consultants and provide these services on a daily basis. 

    J
    jdmarlow2Author
    January 4, 2024

    This is extremely helpful thank you so much!!!

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