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How do you set up Quickbooks for a new multi-member LLC, where each invested x-amount to open a checking account?

After setting up our Quickbooks, the LLC receives weekly commission income, along with a few business expenses.  We'd like to distribute the monthly net income to the managing members.  I'm not sure if DRAW is the correct way to do this.  Is there a better way?

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Best answer 12-10-2018

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@ wadey After setting up our Quickbooks, the LLC receives...

@ wadey

After setting up our Quickbooks, the LLC receives weekly commission income, along with a few business expenses.  We'd like to distribute the monthly net income to the managing members.  I'm not sure if DRAW is the correct way to do this. 

You can not, do not distribute income to members during the year.  Income, regardless of the source, belongs to the business.

LLC's that are NOT taxed as a c- or s-corp, the members have equity accounts, they can take equity draws whenever they wish.  That draw reduces their equity in the LLC, and is not subject to personal taxes when drawn.

End of the year the business either has a profit or a loss - a portion of that profit or loss is then portioned out the the members per the organization document - partnership agreement.  That portion the member receives is an increase (profit) or decrease (loss) to the member equity account (which he can draw out when he wishes),. and the full amount portioned out is subject to personal income tax, members get a K-1 as part of the company filing the form 1065.

For a company taxed as a sole proprietor or partnership, I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)
[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

3 Comments
Established Community Backer ***

@ wadey After setting up our Quickbooks, the LLC receives...

@ wadey

After setting up our Quickbooks, the LLC receives weekly commission income, along with a few business expenses.  We'd like to distribute the monthly net income to the managing members.  I'm not sure if DRAW is the correct way to do this. 

You can not, do not distribute income to members during the year.  Income, regardless of the source, belongs to the business.

LLC's that are NOT taxed as a c- or s-corp, the members have equity accounts, they can take equity draws whenever they wish.  That draw reduces their equity in the LLC, and is not subject to personal taxes when drawn.

End of the year the business either has a profit or a loss - a portion of that profit or loss is then portioned out the the members per the organization document - partnership agreement.  That portion the member receives is an increase (profit) or decrease (loss) to the member equity account (which he can draw out when he wishes),. and the full amount portioned out is subject to personal income tax, members get a K-1 as part of the company filing the form 1065.

For a company taxed as a sole proprietor or partnership, I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)
[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

Established Community Backer ***

"We'd like to distribute the monthly net income to the ma...

"We'd like to distribute the monthly net income to the managing members.  I'm not sure if DRAW is the correct way to do this."

That assumes you have calculated how much to leave as funds in reserve for continuing operations, year end costs, capital purchases, etc.

"If a member gets cash out during the year that is member draw."

Your LLC formation documents should have specified if there is Draw or "Guaranteed Payments" and they also need to specify if the partners are allowed to be reimbursed for business costs paid personally.

This is question better asked of your CPA or whoever set up the LLC for you.
Established Community Backer ***

As an LLC partnership the net profit or loss is passed th...

As an LLC partnership the net profit or loss is passed through to each member at year end irrespective of capital in or out as long as the overall capital accounts reflect book status. I.e. all equal partners.

Each member should have everything equity accounts, member contributions and member draw, which reflect money in or out during the year and are sub accounts of each member overall equity. Sometimes it is suggested to have 3 subs and one summing account which is not posted to.

The initial capital influx from each partner is their initial member equity.  If a member gets cash out during the year that is member draw. Year end profit is posted equally to all members , draw or contribution during the year is posted upward on 1/1 and each year annual draw and contributions restart at 0

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