Equity Questions

answered in your private mail to me

@cembick1 

Throughout the course of a calendar year, the draw account (technically a distribution) should be negative - this is normal.  However, it should be offset by net income.  If you are distributing 100% of the net income, then net income and partner distributions should net to zero.

At year-end, QB automatically closes out net income to retained earnings.  To close out the distribution accounts, debit retained earnings and credit the distribution accounts.  This will zero out both the distribution accounts and retained earnings and the business will start from zero for the new fiscal year.  Create new distribution accounts each year - i.e. 2022 Partner 1 Distributions.

Thank you for your reply.  I am aware of all of the above.  My situation is as such:

i.e.  I deposit $500 to my bank (9637) from partner invest (30201) = 9637 INC $500 30201 INC $500

Now 30201 has a positive balance of $500 and partner total equity (30200) has a positive balance of $500

I write a check to partner for $500 and use draw (30202) from bank 9637 = 9637 DEC and 30202 DEC having a net effect of -$500 on 30202 and -$500 on 9637.

Our problem is not this but this. We have already deposited $10000 from ABC Comp by way of AR into 9637, we deduct all expenses associated with the job and are left with net profit of $8000 to be shared.  How do we move an equal portion of net profit to the partners Invest acct 30201 and 30203?

Please, I know that this can be done but I have tried everything but continue to come up with wrong numbers at the end of the day.  If it were a cash deposit, no big deal I can do it.  But the money is already in the bank by way of an AR payment.  So investment after the deposit

@cembick1 

A/R has nothing to do with this - you still have to deposit the funds.  If you have $8,000 in net income and you want to divide that between two partners, just write a check to each partners for $4,000 and assign their distribution account to each check.  This will put -$4,000 on each partners distribution equity account. You will still show $8,000 in net income but the effect on equity nets to zero. 

Therein lies the problem.  These are examples of what happens when  I write a check to the partner.  Assuming that this is the very first transaction for the account.  We receive $10,000 to the bank and we know that $8,000 is distribution.  We write each partner a check for $4,000 from the distribution account.  This is what we see in chart of accounts:

Bank                                                                                     $2000

Total Company Equity (30199)                                           -$8000 

   Partner 1 Total Equity (30200)                                         -$4000

      Partner 1 Investments (30201)                                            $0
      Partner 1 Distributions (30202)                                   - $4000

   Partner 2 Total Equity (30300)                                        -$4000

      Partner 2 Investments (30301)                                           $0

      Partner 2 Distributions (30302)                                  - $4000

We are a growing company.  We take distributions on most transactions over a certain amount.  At the end of the year, our total company equity may look something like this:

Bank                                                                                     $85000

Total Company Equity (30199)                                         -$128000 

   Partner 1 Total Equity (30200)                                         -$64000

      Partner 1 Investments (30201)                                              $0
      Partner 1 Distributions (30202)                                   - $64000

   Partner 2 Total Equity (30300)                                        -$64000

      Partner 2 Investments (30301)                                             $0

      Partner 2 Distributions (30302)                                  - $64000

I pray that this is more helpful

Thank you!

So my net income on this would look something like $213,000

Sorry forgot to add

@cembick1 

I'm not sure what the problem is.  Your examples are exactly how they should look based on your entries.

Is $213,000 the net income on your P&L?  For 2021?  It is extremely unlikely that your net income is distributions plus your bank balance ($85K + $128K = $231K).  Your bank balance does not correlate to your net income directly.  The chart of accounts (COA) balances are not the proper way to view your balances.  They are only accurate as of the day you're looking at them and it doesn't include net income.  Make sure you're using the balance sheet report and profit and loss to view balances & income/expenses.  

Trial balance shows net income of $213,000.  My concern is having a negative equity balance all year, never having any balance in my investment equity, and always having a negative equity outlook on total equity. 

All I am trying to do is to put money into my equity investment account and draw that same money right back out by writing a check out of my equity draws account, ending up at a net $0.  Money in and money out the same day.  I want a clear picture of my equity position in the COA.  How do I do this?

@cembick1 

All I am trying to do is to put money into my equity investment account and draw that same money right back out by writing a check out of my equity draws account, ending up at a net $0. Money in and money out the same day. I want a clear picture of my equity position in the COA. How do I do this?

The way to do that is to run a balance sheet report and look under the equity section.  If there is a balance in net income (this should match net income on the P&L), then you write a check and split the net income 50/50 between the partners and assign the check to their distribution accounts.  The distributions will offset the net income, netting to zero.

Net income is an equity account and that's a YTD total.  If there is a balance in retained earnings, it indicates you have not drawn all of the previous year's equity out of the business.

Do not use the chart of accounts - it is not a financial statement.  You must use the balance sheet.  The COA does not show net income and, therefore, does not give you an accurate picture of company equity.