Owner Equity and Withdrawals
Salvy1959
Member Posts: 1
Can you explain how to categorize owner equity and withdrawals from a business checking account.
I will be opening up a separate business checking account. Say I plan to deposit $2000 from my personal money to have some operating income for the business. How would I categorize this?
If I make a future deposit of from personal funds, how is this categorized? What if I make a withdrawal from my business?
Thanks
Sal
0
Comments
Oh! That's simple enough! @Salvy1959, you just have to create an income transaction to your bank account and categorize it to Owner's Investment/Drawing. If you take money from your business, you do the same thing, but as an expense instead.
@OrionsBelts can you explain this a little further. Perhaps a step by step process for transferring money from the business bank account to a personal bank account and what chart of accounts debits/credits need to be made in what direction? Thanks.
Thank you @OrionsBelts and @Layer9IT, I am interested in the step-by-step as well.
Here you go:
If you are importing transactions into Wave via bank connection/upload bank statement then you go to your transaction page and find your deposit in your bank account. Using the drop down for categories select owners drawing or equity
If you want to enter via journal entry or manual transaction then go to transactions page select type of entry then:
Debit Cash - Bank $2000
Credit - Owner Draw/Equity $2000
For withdrawals, you would do the opposite of the above.
These are balance sheet transactions and should not go through the income or expense of the business.
In the above explanation you end by saying "These are balance sheet transactions and should not go through the income or expense of the business."
What if I am spending personal cash at an Estate Sale for Inventory. In my business I want to immediate "expensing" these to COGS (we will do an end of year adjustment for remaining).
So I know I need to "Debit" an Expense account, and "Credit" my Owners Investment account. Right? Can you walk me through the steps of MANUALLY entering these transaction entries (since it's a cash transaction, it won't exist anywhere until I do).
Thanks
okdess,
If you are purchasing items for resale and using your own personal funds then, you would debit Purchases (income statement) and Credit Owners equity. Keep in mind that at year end, any items purchased and not sold (inventory) will need to be classified to the balance sheet. The way I do this with clients is to credit purchases and debit inventory for the amount they say is on hand at cost.
Hope that helps
Mike G, CPA
www.mgfinancial.net
Where do you show the claim for gst in these transactions
Hey @Rental96 ! In this particular situation, it sounds like you are asking how to tag an expense transaction with GST when you've paid for a business expense (with personal funds). Essentially, all you need to do is make sure that the account is Owner Investment/Drawing and the category should be whatever the expense is for, then simply just tag the GST like you would any other expense here.
@orionsbelts, I've been struggling with this for a while. Say I make $1000 profit in a year, and noting as a sole trader, all profits need to be paid out year-end. Therefore, I draw $1000 from business as owner drawings, so I:
Does this mean that after an owner equity withdrawal, there will be an ending balance in Owner Draw/Equity of $1000 credit, and it will sit there always... this doesn't have to balance out to Zero? Is this essentially a record of owner drawings (ie: my profit) over time?
@orionsbelts, I've been struggling with this for a while. Say I make $1000 profit in a year, and noting as a sole trader, all profits need to be paid out year-end. Therefore, I draw $1000 from business as owner drawings, so I:
Does this mean that after an owner equity withdrawal, there will be an ending balance in Owner Draw/Equity of $1000 credit, and it will sit there always... this doesn't have to balance out to Zero? Is this essentially a record of owner drawings over time?
I've just created a journal transaction on the accounts for a single owner LLC business. The Owner paid herself with a check from the business checking account. I debited the owner investment/drawing account and credited the checking account. Did I do that correctly ? I see other posts talking about crediting Cash - is that the same as the checking account ? Thank you for your help.
@suzi27,
That would be correct if you are manually entering each transaction rather than having the transactions imported.
Thank you!