LLC equity accounting

[David Cousens]

Hi Matt,

Another possibility is to pay the commission directly to MemberA's 
equity. In Buddha Bucks approach previously , the commission to MemberA 
is never expensed and it is an expense on the business that has to be 
recorded.

LLC:Expenses:Commissions:MemberA   debit $3000
LLC:Equity:MemberA                             credit $3000

LLC:Assets:Checking                debit $7000
LLC:Equity:MemberA                             credit $7000

LLC:Assets:Checking                debit $10000
LLC:Equity:MemberB                              credit $10000

LLC:Assets:Buildings               debit $100000
LLC:Assets:Checking                             credit $20000
LLC:Liabilities:Mortgage                        credit $80000

I think this better reflects the use of MemberA's commission to purchase 
further equity. The  full $20000 comes from the checking account as its 
balance was never reduced in paying the commission and there should be a 
payment for that amount coming out of the bank account so it should 
reconcile. The balancing of equity is also preserved.

The commission is fully reflected in expenses. The commission is not 
unpaid in this case as it is paid by purchasing the additional equity 
again reflecting the true situation.

As always, taxation and jurisdictional rules may apply. MemberA may have 
to pay income tax on the commission. If the business has no obligation 
to collect that tax, then the above is OK and MemberA declares the 
commission in his tax return. In some countries the business may be 
obligated to collect the tax on the commission in which case the above 
starts to get more complicated.

Cheers

David Cousens