retained earnings/draw
melissa18
Member Posts: 13
I need to record money taken out of my s corp by a shareholder. Is the debit side of the entry to "Owner investment/drawings" or "Owner equity"? Thanks for your help!
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melissa18
Member Posts: 13
I need to record money taken out of my s corp by a shareholder. Is the debit side of the entry to "Owner investment/drawings" or "Owner equity"? Thanks for your help!
Comments
Hey @melissa18 - in the case where you are dealing with paying out a shareholder, rather than a sole proprietor business owner, you'd want to run this debit through a Shareholder Loan account instead of Owner investment/drawings. I hope this helps!
melissa18,
To chime in. If the S-corp makes a distribution to a shareholder you should have an account under the Equity section for Shareholder Distribution - John Doe. The rules with S-Corps is that there must be proportional distributions to shareholders (based on ownership). Meaning one can't receive a distribution and the other not. It creates a second class of stock in the eyes of the IRS and can terminate the S-election. All items must be divided proportionally for an S-Corp.
Mike G, CPA
www.mgfinancial.net
Thanks for the information Samd and Mikeg! There is only one 100% shareholder. I will setup a shareholder distribution account as you indicated. Thanks again!
I'm confused about something. I added the Shareholder Distribution account and changed my entry that had been debiting Owner Investment/Drawings to debit Shareholder distribution. This affected my net income. Seems strange as both are equity accounts.
melissa18,
Should have not affected net income. Hmmm, hard to say, but I'd be happy to take a look at it for you. Let me know.
Mike G, CPA
www.mgfinancial.net
I think it just took Wave a minute to reflect the change. When I signed out and then went back to the Dashboard everything looked correct. The income was not affected after all.
Hey @melissa18, great to hear that things are back on track, thanks for the update
The discussion above was precipitated by my S-corp being sent a 1099 for some income that was generated prior to the s-corp being formed. I thought I would be sent a 1099 individually for this income but instead the income was included on the s-corp 1099. I did not deposit this income into the s-corp but rather deposited it to my personal account as I was expecting to get a 1099 personally for the income. I am now trying to figure out how to reconcile the 1099 reported income to what has been recorded in Wave. The issuer of the 1099 does not want to issue corrected 1099. Would an entry to record revenue and shareholder distribution be appropriate? Thanks!
melissa18,
I currently have that with a tax client. You would credit sales for the 1099 and debit owners distributions (since you have the cash). Since it was issued in the S-Corp's EIN there should not be an issue on your personal.
FYI: 1099's are not required for S Corp.
Mike G, CPA
www.mgfinancial.net
Affordable Solutions
That's what I thought but wanted to confirm. Thanks Mikeg!
Should the Shareholder Distribution account be under "Business Owner Contribution and Drawing" or "Retained Earnings: Profit" in the chart of accounts?
melissa18
Business owner drawing. Both are under the equity section of the balance sheet.
Mike G, CPA
www.mgfinancial.net
Affordable Solutions
Mikeg,
In Wave, when I put it under "Business Owner Contribution and Drawing", retained earnings does not get reduced by the amount of the entry. Also, if I click on the ? next to Retained Earnings: Profit it says "Use this to track money that you have taken out of the business".
melissa18,
Retained Earnings is the accumulation of all prior earnings. Typically, for shareholder distributions many owners prefer to have a separate account so you can track cumulative distributions. Shareholder distributions can be placed under either sub account since both are contained in the equity section of the balance sheet. Hope that makes sense.
Mike G, CPA
www.mgfinancial.net
Mikeg,
Am I right in thinking that Retained Earnings should be reduced by the amount of the distribution? What you are saying makes sense. I originally setup the sub-account (Shareholder Distribution) under the Business Owner Contribution and Drawing section and things looked odd. Retained Earnings was not reduced by the amount of the distribution but total other equity was a negative amount. Total Equity looked correct,
melissa18,
It is when it is presented on the balance of the tax return or financial statements. However, when doing bookkeeping they are usually in segregated accounts so for managerial purposes you can see how much owners have withdrawn or how much has the business made on a cumulative basis. Hope that makes sense.
Mike G, CPA
www.mgfinancial.net