How to Record Outside Capital for Business

[Maf. King]

On Thursday 07 January 2010 17:14:05 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


Hi,

I suspect that you are already aware that the best way to do this is to keep 
the business books and your personal books completely separate.  For your own 
reasons, you have chosen not to do this at present.

I think that in your circumstances, I would create a data file for the 
partnership and be completely normal, except that the (temporary) bank 
account is called something like "Bank-of-Matt". 

In your personal accounts, I would create a liability (loan) account for the 
partnership - in effect the money has been loaned to you for safe keeping, 
same as if you loaned it to a bank for them to look after in a checking 
account.   You could have a sub-account in your checking for the partnership, 
just to keep some distinction between "your money" and "not your money" - 
just remember to include sub-accounts when you reconcile your statements! 

To take your examples above, Transfer the $1000 from the Liability account to 
your checking (sub-)account initially, to reflect that you have "borrowed" 
the money from the partnership.  You can reduce that loan by taking some 
salary, which would be a txn between income:salary and 
Liability:Looking_After_Partnership_Money (if you have the sub-account in 
checking, then you will need a split txn to move money from sub- to main, 
too).

Expenses as they happen should be similar too, probably a 4-line split...  

In the partnership books, other than the bank name, all the txns will be 
typical of those that any business would have.

HTH, sorry if I haven't made myself clear! IANAA etc.
Maf.