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Updating Owners Equity + Interest Expense

ddmeddme Member Posts: 4

Hi I have a 2 part question,
1. Since Wave accounting does not close accounts, and use accounts like income summary, how do we properly update Owners Equity? Without making the December Profit and Loss account wrong, which happens if you use closing accounts?
2. A separate issue, how do we categorizes Interest Expense? Since it is not an operating Expense, I cannot create in Chart of Accounts in Uncategorized Expense, it has to be Operating, COGS, Payment Processing or Payroll Expense. I don't think that Interest Expense is in COGS or the other categories either?
Thanks in advance

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Comments

  • KimptonKimpton Member Posts: 78 ✭✭

    part 1: use a journal entry to adjust account balance for year-end date
    part 2: interest expense is an operating expense but can also be a COGs. Create the account in the section that you think is most appropriate.

  • ddmeddme Member Posts: 4

    part 1. What exactly would the Journal entry be? I am not closing my accounts (Not using income Summary and retained Earnings was added but Its not an account) as Wave does not do that, so what would I use to balance with Owners Equity?

    Part 2. Ok, I read it was not an operating expense, but I just made the account.
    thanks

    edited June 11, 2019
  • KimptonKimpton Member Posts: 78 ✭✭

    Wave has a pretty good Help feature. They just produced a guide called Fearless Accounting with Wave; you'll find this more than helpful.

    So, Wave does close out your income and expense accounts and adds it to RE. RE is the shareholders equity from profits. If you want to get at it; declare yourself some dividends at year-end or take a salary during the year.
    for declared Dividends: debit Retained Earnings and credit Dividends Payable
    for Dividend payment: debit Dividends Payable and credit Bank

    If you've made contributions to, or taken cash from your company the balance of such at year end is your shareholder loan account. There are tax rules around this account but basically it's also shareholder equity that's balanced against RE to zero it out.

    I don't think I can be any more specific without seeing your financials. Hope this helps.

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