Question on LLC member distributions w/o closing books

[Buddha Buck]

On Mon Feb 23 2015 at 9:33:33 AM Matt Kowske <jmk at cmail.nu> wrote:
>
> So if I create a liability for the LLC of "Unpaid distributions" I can
> credit this account to represent money not yet paid out to members from
> net profits. The problem still is, where does the corresponding debit
> come from? I can take it from owner's equity but that decreases their
> equity in the LLC and that is not what is happening. Conceptually,
> equity should increase from retained earnings and then decrease as
> profits are paid out.
>

The whole point of paying distributions is to decrease the equity in the
LLC. So yes, it does make sense to debit the equity account for the
owner(s) being distributed to.

There is no need to use a liability account unless there is a desire to
separate out the effective date of the payout from the actual writing of
the checks. For instance, If the owners decided, for tax purposes, to make
distributions at the end of the fiscal year, which falls on a Saturday, the
accountant/bookkeeper might not be able to issue the checks until the
following Monday. In which case, doing it as two transactions,
Cr.Liability/Db.Equity, then Cr.Cash/Db.Liability, would make sense.
Otherwise, simply doing Cr.Cash/Db.Equity would be fine.


> I think Buddha Buck is hitting the crux of what I'm having trouble with
> so I'll continue over there...
>