Correct way to account for past business transactions

[Tommy Trussell]

On Tue, Dec 8, 2015 at 7:26 AM, jmk <jmk at cmail.nu> wrote:

> Hello,
>
> I recently took over accounting for my wife's business. It is not a new
> business and there are some expenses since the beginning of the
> accounting year that she wants to make sure I record that happened
> before the account was opened in GnuCash. These expenses were from her
> personal checking account. I understand that the correct way to do this
> would be to treat them as a loan and the business would pay her back.
> However, she doesn't need this reimbursement and only wants the expenses
> recorded for tax purposes. So... will balancing these expenses against
> an Equity:Balance Adjustments account cause any problems for me later
> down the road? I was also thinking this technically could be considered
> her equity in the company (since she won't be reimbursed), so I could
> balance it against "Equity:Owners Equity" as well. Not looking for
> official tax advice just how other people would do this for proper
> accounting. Thanks.
>

1) Ask a CPA!!! (I am not one.) What would the tax authorities expect to
see if they were to audit your records, might be the real question. (On
both her personal accounts AND her business accounts.)

2) My guess, based on my (half)vast experience is you would enter the
transactions as loans -- in other words a liability to the business, and on
her (your joint?) personal books "mirror" asset transactions. Then on the
date the the loan was declared "forgiven" you would create a transaction in
both books moving the amount to Equity. I probably wouldn't call that a
"Balance Adjustment," but maybe the CPA (see step 1!!!) would be able to
supply standard terminology.

Over the years I have created several asset accounts and liability accounts
in my personal books for similar transactions for various entities,
including some where I charge interest (which I log as interest income),
and so far my CPA hasn't complained.



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