[GNC] Can I add to Equity?

[David Cousens]

David,

When I set up a private company in Australia many years ago, my accountant at
the time charged me for the nominal $2 of share capital so I debited my personal
bank balance  by $2 and credited an asset account recording my contributions to
the company which also included other setup costs (accounting , registration,
various fees etc etc) paid initially out of my personal accounts before the
business bank account was established.  

In the company's books I recorded my contributions to the company as a debit of
$2 +setup costs to the company's bank account and credited Equity->Owner's
Contributions by that amount I then did a transfer of $2 from Equity Owners
Contibutions to Equity -> Capital and Reserves -> Share Capital. The balance of
the setup costs were then recorded as expenses incurred by the company (credit
to company bank account- debit to relevant expense account). My accountant at
the time was happy with this. I was however not happy with other aspects of his
work so I ended up doing a Master's in Accounting. 

The point of recording the nominal share capital is, should you at some future
time turn the company into a partnership (or even public company), that nominal
share capital is then split with the incoming partner and its value can be used
to determine the partners share of the equity i.e future profits. (IPO's are of
course a lot more complicated).

The above of course is not accounting advice as jurisdictional business
legislation and accounting practice may affect the treatment and a local
accountant should be consulted for professional advice.

David Cousens

On Fri, 2022-12-02 at 13:46 +0000, Dr. David Kirkby wrote:
> Hi,
> When a company is set up in the UK, if by just one person, they get a share
> which has a nominal value of £1.
> 
> I'm trying to put my accounts starting this financial year into GnuCash. I
> was not sure where this £1 should go - if anywhere. So I asked my
> accountant. See below my question in bold, and his answer in red.
> 
> * "4) Where should the initial nominal £1 share when the company is set up
> be recorded?  Should that show as £1 equity in the company as an opening
> balance, or is it ignored in accounts submitted after the first submission?
> *
> 
> *The opening £1 share is shown and brought forward share capital in the
> accounts under the ‘capital and reserves’ section."*
> 
> I assumed this meant I added £1 to the Equity, so I created an account
> 
> Equity -> Capital and Reserves -> Share Capital
> 
> with the intention of adding the £1 share there as an opening balance. But
> it is not possible to edit the opening balance of that account.
> 
> I assume it's me, as the director, that owns that £1 share. I guess, since
> it's only a very small amount, I can ignore it, but it would be nice to
> know where it should go.
> 
> Any thoughts on where this should go?
> 
> Dr David Kirkby Ph.D
> Email: drkirkby at kirkbymicrowave.co.uk Web:
> https://www.kirkbymicrowave.co.uk/
> Kirkby Microwave Ltd (Tel 01621-680100 / +44 1621-680100)
> Stokes Hall Lodge, Burnham Rd, Chelmsford, Essex, CM3 6DT.
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