[GNC] Owner Contributions & Distributions

[Don Ireland]

What I was referring to is the checking account I use for my business. When I make what the bank sees as a deposit, I need to account for it in my books.

My books includes an asset account called Business Checking.  Wouldn't that deposit be considered a credit?  Based on what you've described, it sounds like you'd treat it as a debit.

I need to account for moving money from my personal checking account into the business account.  I entered it in to my personal check register.  Now I need to separately account for it in the business books.

On January 17, 2020 3:50:03 PM CST, Adrien Monteleone <adrien.monteleone at lusfiber.net> wrote:
>Speak to a local CPA for details for your situation and jurisdiction,
>but from what you can find in a basic accounting text book, generally
>both contributions (capital investments) and distributions (draws) are
>equity accounts.
>
>The tree would look something like this:
>
>Equity
>|_Opening Balances (already exists)
>
>|_Owner’s Equity
>  |_Investments
>    |_Capital Investments
>    |_Reimbursements
>  |_Earnings
>    |_Dividends
>  |_Draws
>    |_Owner’s Draws
>
>|_Retained Earnings (already exists, either actually, or virtually)
>
>(there might be other types of Draws or Earnings which is why I show
>those parent accounts with a specific child. You could just leave the
>child accounts off if you don’t have need for them, and refactor later
>if you do. Other types of Investments might also include land,
>buildings, equipment, product, etc.)
>
>All of these accounts should be created as type ‘Equity’
>
>
>A sample transaction when you make contributions to your business would
>be:
>
>Dr. Cash/Checking, etc.
>Cr. Equity:Owner’s Equity:Investments:Capital Investments
>
>
>A sample transaction when you take a draw would be:
>
>Dr. Equity:Owner’s Equity:Draws:Owner’s Draws
>Cr. Cash/Checking, etc.
>
>
>If this is a distribution of profits, (and not just a draw) then you’d
>use the Dividends account:
>
>Dr. Equity:Owner’s Equity:Earnings:Dividends
>Cr. Cash/Checking, etc.
>
>
>This will keep all of these transactions in the Equity part of the
>tree. They will not affect Income or Expenses, but they will affect
>assets as money is put into the business or taken out.
>
>Note that Capital Investments don’t decrease as you take Draws or
>Dividends, and nothing ever decreases the Draws or Dividends, but all
>three affect the parent account "Owner’s Equity” balance appropriately.
>The Earnings & Draws parts of the tree will generally have ’positive’
>sign balances if you aren’t reverse balancing accounts, or ’negative’
>sign balances if you are. (for all credit accounts) This is because
>those two accounts are ‘contra’ accounts from normal Equity type
>accounts, meaning they will have the opposite balance expected for
>Equity, that is, a debit balance is normal, instead of a credit balance
>as normal.
>
>But certainly, how this is setup or done is entirely dependent on your
>exact form of your business and legal situation and requirements, which
>is why you should really, really, really get a local CPAs advice.
>
>Regards,
>Adrien
>
>p.s. - though it may not matter since you might not be using such a
>transaction, your below example of depositing money into a checking
>account wouldn’t be a credit to it. As you are increasing an asset, it
>would be a debit for that side of the transaction.
>
>
>> On Jan 17, 2020 w3d17, at 3:17 PM, Don Ireland
><gnuCash at donireland.com> wrote:
>> 
>> I'm having trouble figuring out the best way to handle owner
>contributions and distributions in gnucash.  I understand them in
>concept but I'm just confused as to how the accounts get set up.
>> 
>> My 1st thought was to create an asset account called Owner
>Contributions and another called Distributions.  But then when when I
>take Distributions, unless I take the funds from this contributions
>account, it'll just continue to grow.  
>> 
>> Plus when I credit this account but deposit the money in the checking
>account, gnucash would see both as credits.  So then I thought maybe
>it's a liability account but that still leaves the question as to
>separating the contributions and distributions. 
>> 
>> Do I create one account called Contributions & Distributions and
>credit/debit this single account?  Is it a liability account?
>> Don Ireland
>
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Don Ireland