My wife and I have a small business. We purchased an office suite for $65K.
- Our business bank account had $25K from income generated this year.
- We deposited $50K from our personal account into the business bank account, and recorded a journal entry: debit to the business bank account and credit to an owner's equity account.
- The remaining $15K came out of the $25K we had in the business bank account from income generated this year.
- For the purchase, we recorded a journal entry for $65K: debit to a fixed asset account for the office suite, and credit to the business bank account.
Our question is about not recording an entry for using the $15K from the business bank account - we're unsure what impact that would have on Retained Earnings, since our understanding of current year RE is prior year RE plus current year net income less current year distributions, given we made no entry to reduce current year income by $15K.
Thank you.
