sole proprietorship with respect to my PERSONAL books?

[Mark Phillips]

Paul,

I have two suggestions.

One, talk to an accountant or take an accounting class, or read a book
about small business accounting. At some point you will need an
accountant's help in the first year when you pay taxes, but from then on
you can probably handle it yourself.

Two, it might help you to ***not*** think about it as "all your money". I
think that concept may be causing you to stumble a bit regarding the money
between your personal pocket and the business. Instead, think of your
business as being run/operated/owned by a friend. He/she has come to you
and wants you to help him/her start the company. What terms do you want for
your money - is it a loan or an investment? How will your friend pay you
back?  When will payments occur? If you think about it this way, I am
pretty sure the fog will dissipate a little. In the US, companies and
people are separate legal entities, so it may help you to think of them
this way.

For example, you give money to your friend as a loan, so you have an asset
on your personal books and money flows out of your bank account. Your
friend pays you back, and you have a reduction in the loan asset and money
goes into your personal bank account. You give him/her more money and your
loan asset increases and your bank account is reduced. You run short of
cash, want to take your girl friend out to dinner on Valentine's Day, so
you go to your friend and ask him/her to return some of the money you lent
to the business. You get money in your bank account, the asset-loan is
reduced, and you have a great dinner with your girl friend.

Good luck!

Mark


On Thu, Feb 14, 2013 at 2:06 PM, Paul Elliott
<pelliott at blackpatchpanel.com>wrote:

> On Thu, Feb 14, 2013 at 02:05:26PM -0500, jcard21 xxxxxxx wrote:
> > On Thu, Feb 14, 2013 at 1:19 PM, Paul Elliott
> > <pelliott at blackpatchpanel.com> wrote:
> > >
> > > OK, Say it's a lawn-mowing business, when it started, all its
> > > accounts had $0 in them. But the business had to buy a lawnmower,
> > > but there was not initially any money in the business accounts
> > > to buy a lawnmower. So X dollars was initially moved from personal
> > > accounts to business accounts. Then later a check could be written
> > > on those business accounts to buy a lawn mower. And a separate purchase
> > > of gasoline on the business's debit card.
> > >
> > > On the business's books, one side of the transaction was the business
> > > bank account, but the other side was "Opening Balances" under Equity.
> > > I get all that.
> > >
> > > But on the personal books, the X dollars that disappeared from
> > > personal bank accounts to fund the business, what is the "other side"
> > > of that transaction? This one of my questions.
> > >
> > > Later, the business accounts have accumulated a great deal of money.
> > > Because of a lot of lawn-mowing.  More than enough to buy gas, or
> > > repair the lawn mower.
> > >
> > > But the personal accounts are low and the owner wanted to take his
> > > girl friend out on a date. It was anticipation of this situation and
> > > others like it that caused the lawn mowing business to be started in
> > > the first place.
> > >
> > > So Y dollars got transferred from lawn-mowing business to personal
> accounts.
> > > That way, when the owner used his personal debit card to pay for the
> date
> > > the bank did not complain.
> > >
> > > On the books of the business, one side of the transaction was a
> lawn-mowing
> > > business bank account and the "other side" was owner draw.
> > >
> > > But on the owner's personal books, one side of the transaction was a
> > > personal bank account, but the other side was WHAT? This is my other
> > > question.
> > >
> > > All of the time that the owner was lawn-mowing, he was thinking about
> > > his girl friend and how the date would go. I am afraid the owners
> thought's
> > > were not very logical. But even though the owner was not logical, he
> > > did the transfer anyway. He said, correctly, "it is all my money".
> > >
> > > It is only the possibility of illogical dates, that kept the lawnmower
> > > moving.
> > >
> > > This is a very common situation. There are many sole proprietorships.
> > > There must be standard answers for my questions.
> >
> > Paul, there are standard answers in a general sense, but they may be
> > incorrect in you specific business case.
> >
> > You are going to have thousands (no exaggeration) of these types of
> > questions ...
> >
> > I don't know your background, but you should really take an accounting
> > course specifically geared towards small businesses.
> >
> > That said, ...
> >
> > For your example: BUSINESS lawn mowing company paying PERSONAL you,
> >
> > PERSONAL BOOKS: double-entry transaction:
> > Asset:BankAccount ... $xxxx
> > and
> > Either: Expenses, Income, Liabilities, or Equity : $xxxx.
> >
> > Which do you think it is? One of these is the obvious correct answer.
>
> I am not an expert, but I think it is Equity.
>
> It is not expenses, because I did not buy anything. The transfer might
> have happened 2 days before the date.  It is not Income because that
> is revenue-expenses. When the transfer took place it might have been
> days since I mowed a lawn or bought gas for the law mower. I am not
> any richer or poorer because of this transfer. If equity increased or
> decreased in the bussiness, then equity must decrease or increase in
> personal by an equal amount. Nothing really happened, because at the
> bottom of things I own it all.
>
> But that is just what I think. I could be wrong.
>
> --
> Paul Elliott                               1(512)837-1096
> pelliott at BlackPatchPanel.com               PMB 181, 11900 Metric Blvd
> Suite J
> http://www.free.blackpatchpanel.com/pme/   Austin TX 78758-3117
>
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