Sole Prop to Corporation adjustments

Forum|Forum|5 years ago
August 20, 2020
1 reply
10 views

Hello,

I have a client that went from Sole proprietor to Corporation starting 1/1/2019

They did not start a different quickbooks so the balance sheet has equity and receivables from previous years. I know I should close out 12/31/2018 with a journal entry to allocate the assets to new corporation and bank account balances but not sure of the proper way. Can you please point me in the right direction.

I have attached an image.

Thank you

QuickBooks Accountant Desktop

john-pero

Level 12

What type of corporation? If truly an S or C there should be a sale of personal (sole prop) assets into the corporation and the corporate entity has a new and different tax ID and as such really there should be the initiation of a new company file and not just a continuation of the existing. But, in a nutshell, in my OPINION, and "free" advice you have to close out all personal equity as of 12/31/18 and then post that equity out to initial ownership in the new entity. It makes a big difference if a true corp with shares and shareholder ownership as there is no longer owner equity contribution but would be sale of stock to the new owner for the value of A/R and assets provided.

Going from Sole Prop to single member LLC is a little simpler, moving values from Owner Equity to Member Equity and since the pass through of profit or loss is identical

cvmom73Author

Thank you so much for your free advice. Yes, that is what I thought and I had advised client to start a new accounting since they formed a new corporation. I just wanted to make sure the adjustments I do are done correctly.

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