Member Equity Accounts
I was on here last year trying to find an answer and Rustler came the closest but no cigar. This is an Equity question and I will try to be brief as I can.
Example:
I have three member/Partners. We receive money from our clients. When we receive it we deposit it to the bank. After the deposit we deduct all expenses for the job we received the money on. We end up with a net profit. The net profit is split 4 ways. 40% goes into a reserve bank account and the remaining 60% is split between the member/partners.
Since the money has been deposited to the bank already, we do a bank transfer from bank A to bank B for the reserve.
Then we do a check from the bank and debit owners draw. The money never sits in the bank long before we draw it out. The problem is, at the end of the year we have a huge negative equity balance for each member/partner.
I understand that if I put my own personal money into the business, I would credit my investment account causing a positive balance and when I take it out I would debit owners draw:
Credit Investment $1000
Debit owners draw $1000
Net Equity equals $0
Sorry this is so long
As it is now, there is never really an investment, only a draw
Money from client $15,000 deposit to bank A net effect is $15,000 credit
All expenses have been reduced to $10,000 net profit
40% is bank transferred to bank B ($4,000) leaving a balance in the bank of $6,000
We write a $2,000 check to each member and debit owners equity.
This leaves a negative -$2,000 in each members account.
What initial entry can I make that will increase the investment equity by the initial $2,000
so that when I do a debit to owners draw it just balances out?
Any help would be greatly appreciated. I know I said brief, but.....
Clay Embick