Questions about Owner's Equity Accounts

RichLux

I'm a Newbie to Wave and I have a number of questions regarding Owner's Equity Accounts. Any help would be greatly appreciated:

1. By default Wave created a single account Owner's Equity account . I have a multi-member LLC, so should I create an Owner's Equity account for each member?
2. For Starting Balance for Assets, according to this Wave help document, starting balances for assets should be entered as a Journal entry with a debit to the asset account and a credit to "your Owner's Equity account for the same amount." If I have multiple Owner's Equity Accounts, how would I allocate these items?
3. How do I keep these Owners Equity Accounts up to date? I've allocated distributions/draws to these accounts, but Wave also created an Owner Contribution account (I added one for the other partner) and money put into the company is assigned to these accounts. Shouldn't there just be a single account for each partner that money in and out is assigned to? Also, am I supposed to manually add entries each year to include end of year profit/loss in these accounts?

Thanks in advance,
Rich

Mikeg

@RichLux,
Here you go.
1. Yes, an equity account should be created for each partner. For partnerships that I work with, I usually create one for each partner under the Owners Contributions and Drawings. Wave has 2 sections under Equity, it does not matter which one you use. Meaning you can create either Owner's Equity - Rich or Owner Contributions/Drawings - Rich.
2. You allocate based on the value contributed by each partner. A simple example would be Rich and Mike contribute cash of 500 each. Debit Cash - Checking $1000 and credit Owner Contribution - Rich $500 and credit Owner Contribution - Mike $500
3. Typically there is one equity account for each partner. You can have multiple. Meaning you can have one for contributions and one for distributions for each partner. Manual entries are not needed unless the transaction happens outside the financial account of the partnership. As an example, Rich buys some office supplies with personal funds. Debit Office credit Owner Contribution - Rich. By default, the yearly profit/loss does not get closed out to each partners equity account. It will accumulate under Prior Profit and Loss. In sum, the equity section should agree to ending Partners equity on the partnership tax return. Each partners ending capital will sum to the total ending capital.
Hope that helps

RichLux

@Mikeg ,

Thank you so much for the thorough answers. We just started business in late 2021, so I'm new to all this. Forgive me if my questions don't completely make sense.

For #2 above, we have our bank account linked with Wave, so when we put cash into the company, there's a transaction for the deposits. I've just been assigning those deposits to the Equity accounts. (and the same when a draw is taken). Should I be doing what you mentioned and making a Journal entry to Debit Checking and Credit Owner Equity instead? If so, what do I do with the actual transaction that was imported so the amount is not counted twice?

We weren't using accounting software for 2021, so I'm trying to start fresh 2022 with the end of year info from 2021. I entered all the owner contributions for 2021, but is there a way to enter last year's profit so it's included going forward?

Thanks again,
Rich

Mikeg

@RichLux,
For 2. No, since your bank account is connected, it would be correct to categorize deposits as contributions and withdrawals as distributions. No journal entry needed. I was referencing when the transaction does not go through the bank account.
You would post your opening balance sheet as a journal entry. The offset would be owners equity which would agree to your prior year profit/loss. There is no way to make an entry to prior profit and loss. You can use an Owner Contribution/Drawing for each partner and enter cumulative balances.

RichLux

Mike,

Thanks again for your answers. I really appreciate it.

Rich