"Owner Investment / Drawings" vs. "Owner's Equity"

waveisawesome

Hi,

Can somebody help me to distinguish these 2 category ? They both sound the same to me to use when I take money out of the business.

Which category to use when I draw $ out of the business?

Mikeg

@waveisawesome,
I would say that the description could be a little better on Wave's part to remove the withdrawal language out of Retained Earnings. However, keep in mind that there are different entity structures that use Wave i.e sole proprietor, corporations and partnerships. There are differences in how each entity would interact with those 2 accounts. So for example, a C-corporation distributing money from Retained Earnings has different tax consequences than a partnership. For clients I service, I use Owner Investment/Drawing for distributions and contributions. I use Owners Equity as stated in it's name "Retained Earnings". So as an example, for an S-Corp, that number would agree to the AAA account on Form 1120S. Also, by using an investment and drawings account, you will get a cumulative amount of net contributions or distributions. Hope that makes some sense.

SFWaver2016

Due to the previous iteration of Wave having poor handling of an LLC sole or partnership passthrough entity for EQUITY accounts, I set up all inter-company transfers and owner transfers as SHORT-TERM ASSETS/SHORT TERM LIABILITIES and reconciled these accounts at year end, depending on how the owner(s) want the cashflows and balance sheets to be reported. Very manual process that I wish was better automated.

mandyman27

@SFWaver2016 said:
Due to the previous iteration of Wave having poor handling of an LLC sole or partnership passthrough entity for EQUITY accounts, I set up all inter-company transfers and owner transfers as SHORT-TERM ASSETS/SHORT TERM LIABILITIES and reconciled these accounts at year end, depending on how the owner(s) want the cashflows and balance sheets to be reported. Very manual process that I wish was better automated.

I've got a follow-on question- would these inter-company transfers be treated as a Loan from the company? I've got a situation where co-owners have been "borrowing" money from a and paying it back sporadically with small sums of money... I understand now that these have tax implications if it isn't filed under a "Secure loan'- for accounting purposes, would I file it under Liabilities- Loans and Line of Credit or Owner's Equity Drawings? I mean, this money has not been set aside specifically for Owner's Equity and Drawings, and of course over a long period of time (2 years), these unsecure casual "borrowing" have become liabilities for the company...