How to Record Outside Capital for Business

[James Wilde]

On Jan 7, 2010, at 18:14 , Matt McCormick wrote:

> Hi there,
> 
> I have an accounting question regarding entering transactions into Gnucash.
> 
> I have entered into a partnership for a business.  My partner is
> providing all the capital at this point.  However, there is no
> separate business bank account yet so I am just keeping the money in
> my personal bank account.  I am also paying myself a "salary" out of
> the investment for doing the work.
> 
> For example:
> - Partner provides me with $1000 which goes into my personal bank account
> - Out of that, $500 will be paid to me as a salary and $500 will be
> used for other business expenses
> 
> I cannot figure out how to record this properly in Gnucash. I tried
> setting up the business as an equity account but don't know how to
> enter a transaction that would show up as income for me.
> 
> Would someone be able to help me figure out the proper accounting for this?
> 
> Thanks
> 
> Matt

Matt, my first reaction is to say at least get a separate bank account for the company's cash, even if it is in your name and at your bank.

My second, third and fourth reactions are the same.

Failing this, perhaps your best option is not to have a bank account in the partnership, but to treat all receipts and payments as cash.  The balance on the cash account is what you owe the business.  Well, that's not strictly true, but it is for the two transactions you have mentioned.

Regarding the 500 to you, this will be a credit to the cash account and a debit to the wages expense.  Don't forget, from the point of view of the business, you are an expense, and your salary and any employer taxes are treated as such.  If you have a separate set of accounts for you personally, there you will have 500 into your bank account and 5oo credited to an income account.  But make sure from day one that you keep you - house, utilities, car, wife, children - separate from business - sales, purchases, expenses, debtors, creditors.

//James