Fwd: Re: sole proprietorship with respect to my PERSONAL books?

[James Kerr]

Sorry. I sent this to the OP instead of to the list.

-------- Original Message --------
Subject: Re: sole proprietorship with respect to my PERSONAL books?
Date: Thu, 14 Feb 2013 22:58:34 +0000
From: James Kerr <jim at jkerr82508.free-online.co.uk>
To: Paul Elliott <pelliott at blackpatchpanel.com>

On 14/02/2013 21:06, Paul Elliott wrote:

>> 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.
>

Exactly. Contrary to what has been suggested in some earlier messages,
the cash that you transfer to the Lawn-mower business is neither an
investment nor a loan. It is simply an allocation of part of your
personal wealth, which you have decided to account for separately. (You
could if you chose, account for the business within your personal
accounts. Keeping a separate set of books for the business is done only
for convenience.)

In your personal books you could open an account under Equity named, for
example "Lawn-mower business" with two sub-accounts "Transfers to" and
"Transfers from". When you move cash to or from the business the "other"
side of the entry, that you asked about, is either "Transfers to" or
"Transfers from" as the case may be.

The balance in these accounts would always be equal and opposite to the
corresponding Contributions and Withdrawals accounts in the business books.

Jim