S-Corp: How do I handle initial cash infusion that started the company?

[Buddha Buck]

There are two issues here:
1. How to clear out the Imbalance-USD account and get the books reflecting
what he intended to record; and
2. Should the $5000 initial infusion be recorded as coming from equity or
liability, given that he later took the $5000 back out of the business.

WIthout being intimately familiar with the laws of the jurisdiction that
his business is in, I don't think any of us are qualified to answer the
second question. I encourage the original poster to consult with a local
accountant. If they say that it should have been treated  as a loan, and
not as an equity infusion, then ask us how to change it, and we can help.

But the first question should be a piece of cake -- and is what was asked
originally.

Here's my answer:

You have, in your Chart of Accounts, an account called "Imbalance-USD".
When you create a Transaction in GnuCash, the transaction is supposed to
balance -- each transactions is divided into two or more "splits", each of
which has a debit (left-hand) or credit (right-hand) value, and the sum of
debits must equal the sum of credits. If you fail to balance the
transaction, GnuCash will create a split for the Imbalance-USD (or
Imbalance-GBP, Imbalance-JPY, for whatever currency your transaction is
imbalanced in) that will balance out the transaction.

If everything is going right, there should be no transactions listed in the
Imbalance-USD account. The existence of any transactions listed in that
account is a sign that those transactions were entered incorrectly.

So open up the register for the Imbalance-USD account and look at the
transactions listed there. You can select a transaction, and press the
"Split" button along the top row of buttons.

The register line should split up into four or more rows, the top row will
have the date and the transaction description. The rest of the rows will
have no Date field, and the bottom row will be completely empty. The
remaining 2+ rows will show one account and debit/credit for that account,
per row.

>From this (date, description, and accounts and values) you should be able
to figure out which transaction was fat-fingered.

At this point, you can edit the entire transaction -- the accounts, the
debits, the credits, etc, until the transaction looks like what it should
be.

My *guess* would be that the transaction credits Equity:Capital for $5000,
and debits Imbalance-USD for $5000, when it should credit Equity:Capital
for $5000 and debit Assets:Checking Account for $5000.

When you change the Imbalance-USD account to some other account (whatever
the proper account should be), then the transaction will disappear from the
Imbalance-USD register.

Keep fixing transactions in the Imbalance-USD register until they are all
gone.


On Sun, Dec 25, 2016 at 9:01 PM DaveC49 <davidcousens at bigpond.com> wrote:

Hi,

I think you have made a mistake on the initial transaction for the injection
of the $5000 capital into the company.

If it is not a loan that has to be repaid then the original exchange is
$5000 in cash  for $5000 equity in the business. This transaction should
have the following splits.

                                                     Debit
Credi

Asset:Bank:CheckingAccount           5000
Equity:CapitalContributions
5000

Your are showing  ($5000) in the distributions which would not normally
contain any entries unless you have really made a distribution to the
shareholders of the company. i.e. returned money to them (or yourself).  It
may be the Imbalance account is the other half of this split. If this is the
case then simply  deleting the whole transaction should restore things to
order.

In my jurisdiction (Australia) the Distributions account is usually used for
recording distributions of dividends to stockholders in  a publicly listed
company. For a private company, the distribution of profits to the owner is
normally done through an account labelled Drawings. The names are not
critical as long as the meaning is clear to you and your accountant, but it
will make your accounts easier to understand if you are following local
practices and conventions.

If your inital contribution to the business is by way of a loan that has to
be repaid, then the inital transaction would be
                                                    Debit
Credit
Asset:Bank:CheckingAccount          5000
Liability:StartupLoan                                                   5000


and you would then make repayments as per any other loan crediting the
Liability:StartupLoan and debiting an expense account  e.g.
Expense:LoanRepayments by the payment amount.


David Cousens



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