Question on LLC member distributions w/o closing books

[Edward Doolittle]

I've been following this thread with interest, and I'd like to check
whether I understand.

What you are talking about is called "owner's draw". Depending on the tax
regime, owners should extract profit from a business by drawing down equity
rather than through a salary (which would appear on the business books as
an expense) because owner's draw does not impact the profit (income -
expenses) of the business.

If an owner's draw is taken, typically a cheque is written to the owner for
the amount, and a transaction is recorded crediting chequing and debiting
the owner's equity out account. The transaction would not be recorded until
the cheque was written, so there would be no question of the books being
out of sync with the reality of what is in the accounts.

If an owner's draw is acknowledged but not immediately taken, a transaction
is recorded crediting a liability (money owed to an individual) and
debiting the owner's equity out account. When the cheque is written,
another transaction is recorded crediting chequing and debiting the
liability account.

I don't know why the owner would not immediately take the cheque for the
draw, but I can imagine that there might be reasons.

In the olden days, books were closed to help with the calculations needed
to determine various quantities including an appropriate amount for owner's
draw. Nowadays with computers and a properly organized chart of accounts
the necessary calculations can be done at any time without closing the
books.

I can't quite wrap my head around the appropriate way to manage owner's
draw in the context of closing the books, but I think I should be glad I
don't need to wrap my head around it. :-)

-- 
Edward Doolittle
Associate Professor of Mathematics
First Nations University of Canada
1 First Nations Way, Regina SK S4S 7K2

« Toutes les fois que je donne une place vacante, je fais cent mécontents
et un ingrat. »
-- Louis XIV, dans Voltaire, Le Siècle de Louis XIV, Chap. XXVI