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

[Paul Elliott]

On Fri, Feb 15, 2013 at 12:31:05AM +0000, James Kerr wrote:
> >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.

I just talked to an accountant who confirmed that you are right.

I wish there was more documentation of this in Accounting web pages
and accounting software documentation. They all seem to want to
tell you about owner's equity and drawing accounts. But none of
these pages seem to want to tell you what to do on the personal side.

This probably accounts for all the people on this list that think
you make some weird personal loan to yourself. I think this proves
that in the case of the sole proprietorship, the most common, somebody
needs to tell the other half of the story. Especially when so many
web pages say that you have to have separate books for your sole
proprietorship.



> 
> Jim

-- 
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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