[GNC] what is best procedure to 'split off' to a new set of books?

[Michael or Penny Novack]

I think your problem is misunderstanding "equity".

You, as owner of these businesses have a total equity. Each of these 
businesses has an equity. You are imagining that because was on one set 
of books (your equity included the businesses) when you split YOUR 
equity is reducing. You are forgetting the fundamental equation, Assets 
= Liabilities + Equity and that you are allowed to add to one side of 
the "=" if you add the same to the other.

When you split off a business, ITS assets, liabilities, and equity are 
going to another set of books (you see that) BUT at the same time its 
equity is appearing on YOUR books as an asset (your investment in this 
business, in the amount of its equity) and of course an increase in your 
equity in the same amount. In other words, the split off of the business 
has decreased and increased YOUR equity by the same amount. No change to 
YOUR equity.

Michael D Novack




On 1/19/2025 8:12 PM, David Cousens wrote:
> Michael,
>
> My assumptions and reasonong in formulating the answer were that the
> total equity of the owner after the split  comprised the Equity of his
> personal accounts plus the Equity of the business accounts.  That is
> the owner of the business and the business are separate entities for
> accounting purposes. The real purpose of spliting the accounts is then
> to also split the equity which was previously just in the personal
> books before the business books were established and transfer the
> appropriate component of the equity and assets to the business entity.
> The process of splitting the books necessarily involves a transfer of
> equity from one set of books to another.
>
> By recording the business as an asset in the personal accounts no
> transfer of equity to the books of the new entity is achieved where
> there is a transfer of funds from say a bank account in the personal
> accounts to another asset account for the business in the personal set
> of books.
>
> Whereas crediting the appropriate asset account from which funds are
> transferred to the business (decreasing its balance) and debiting an
> Equity account (decreasing its balance) in the personal books recording
> contributions to the business decreases the equity in the personal
> books and then the second entry entry set in the business' books
> completes the transfer of equity to the new set of books for the
> business establishing the asset and equity transfer from the personal
> books to the business books.
>
> David
>
>
> On Sun, 2025-01-19 at 10:24 -0500, Michael or Penny Novack via gnucash-
> user wrote:
>>> You also own the business.
>>>
>>> I would set up an account in Equity in your personal accounts
>>> "Contributions to xyz business" and a similar Equity account in the
>>> business books "Owners contributions".
>> More generally, you own part of this business.
>>
>> Why under Equity? Why different from any other investment. I'd expect
>> to
>> be putting my ownership share of this business under Assets.
>> Otherwise
>> the same. If you use personal funds or credit on behalf of the
>> business,
>> the that represents a change in your investment.
>>
>> But yes, in the business's books, ownership shares under equity.
>>
>> Michael D Novack
>>
>>
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-- 
There is no possibility of social justice on a dead planet except the equality of the grave.