Equity Accounts

[Tommy Trussell]

On Fri, Jan 11, 2013 at 7:55 PM, thedini <constantine.macris at gmail.com>wrote:

>  One of the members (LLC with 3 members 45/45/5 not taxed as
> corporation, taxed as individuals) spent money out of pocket on business
> expenses. We don't want to pay him with the cash we have on hand because we
> want it to remain in the business for now. What we want to do it set up an
> equity account for each member and have those expenses post in there.
>
> Question: From what I understand I should set up an equity account for each
> member and those expenses go into that. Now if I want to do that how would
> I
> set that up and have the expenses appear in the right expense account.
> Would
> it be better to post it as a loan?
>


I am not an accountant, but the way I handle this sort of thing is to think
of the entity and how you ultimately intend to manage it. For an expense by
a member on behalf of the entity, that transaction would become an account
payable. (If the entity had loaned money to a member that you expected
would be repaid, then the transaction would be an account receivable.)

SO what I would do is:
1) Ask your tax adviser if this is OK, and whether there are potential
pitfalls. (I have no idea! There may be rules about how long you can owe a
member the money, for example.)

2) Create the following accounts:

Liabilities:Accounts Payable:Name of Member A
Liabilities:Accounts Payable:Name of Member B
Liabilities:Accounts Payable:Name of Member C

If you do this manually as I am describing be sure to edit the accounts to
make the account types Liability because I don't think you want to risk
messing up the automatic A/Payable accounts especially if you use them the
way they were intended. (I have never used the business accounts, but I
imagine the process would be to set up the members as vendors in the
system. In that case, let GnuCash handle the account types and managing the
payments.)


Then when Member A buys a book of stamps, the transaction would look like

Expense:Postage and Delivery $9
Liabilities:Accounts Payable:Name of Member A   $9

At the point where you decide the entity has enough assets to repay the
person (for example the entity might owe them $101 in this example), the
entity would generate a check (or whatever kind of payment) out of your
current assets

Assets:Current Assets:Checking Account   $101
Liabilities:Accounts Payable:Name of Member A     $101

If you don't get the debit/credit columns right it will be VERY obvious and
easy to fix.

[Now that I am putting this out there, the folks with actual accounting
experience may poke holes in it...] ;-)

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