owner equity vs owner investment
onthebooks
Member Posts: 9
In wave what is the difference between the owner equity account and the owner investment/drawing account? Reason I'm asking is because instructions say to put the starting balance to owners equity but should it go to owner investment?
Thanks
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onthebooks,
Owners investment/drawing typically correlates with cash that you put in the business and cash withdrawn. While owners equity is the retained earnings of the business or the original investment. So if you are just starting out you can use either but typically Owners Equity is used for the opening balance.
Hi
If the owner transfers his personal laptop and furniture for the business what would be the credit entry?
Thank you
@wathsala_2020,
The entry is Debit assets (Furniture and Computers) and credit either owner equity or owner investment/drawings. If you are in the US, you would use what you paid for the amounts unless they were previously used as business assets.
Hi @Mikeg ,
Thank you very much for the quick response.
Is the answer same if the business is a corporation?
DR Asset
CR owner equity /drawings.
Thank you
@wathsala_2020,
The answer is typically different for a corporation. Corporations issue stock in exchange for cash or property from the owner. A corporation also has a stated par value when the entity registered with the state. Most stock has a par value of 1 cent. To do it right, it's best if I give you an example. Owner (Shareholder) contributes furniture which cost them 1200 and a computer which cost them 800. Neither item was used previously for business (meaning no depreciation taken). The company registered with the state and has the authority to issue 100,000 shares with a par value of 1 cent. In exchange for the property the corporation issues 1000 shares. This represent all outstanding shares which makes the shareholder the 100% owner. You will need 2 accounts in the asset section under property (Furniture and Computers) and 2 in the equity section. Common Stock and Additional Paid in Capital. The following entry would apply:
Debit Furniture (asset) 1200
Debit Computers (asset) 800
Credit Common Stock 10 (1000 shares x .01)
Credit additional paid in Capital 1990
The alternative is to create a Loan from Shareholder account. Debit the assets and credit shareholder loan.
@Mikeg
Thank you so much for the detailed explanation.
@Mikeg
Hi Mikeg
Really thanks for your responses.
This is related to the above post.
could you please explain how is it possible to use an alternative entry (which is debiting the assets and credit shareholder loan without creating common stock and an additional paid-up account?
Thank you
@wathsala_2020,
In lieu of crediting equity (stock or paid in capital) the amount would be shareholder loan. From my example above, instead of crediting stock ($10) and paid in capital (1990) the credit would be to shareholder loan. Again these would be created using a journal entry. It is found under Accounting/Transactions/ under More (top right)
@Mikeg
Really thanks.