Taking funds out and put in funds sole proprietorship
/I hope I am posting this in the right place
I am currently running a side gig. It is a sole proprietorship. I use my own funds to pay for business expenses, but I also take all funds the company makes for personal use. Basically, when I need to purchase something for the company, I use my personal account and when the company receives money, I withdraw it from the business account. How do I record this in Qickbooks Online? I am located in Canada if that makes a difference.
Also, I am migrating over from Wave. Do I need to enter all transactions, or can I just set opening balances on accounts?
Welcome to the community and QuickBooks. You're definitely in the right place.
You've asked really important, fundamental questions. It's totally common for business owners to pay for business expenses out of their personal funds and vice-versa. The accounts associated with these transactions are "Owner's Equity" and "Owner's Draw," and while they may sound technical, they are pretty much exactly as you described.
In QuickBooks, depending on if you're using personal funds for business (Owner's Equity) or paying for personal expenses from business funds (Owner's Draw), you'd first deposit the cash amount into said account and then use that same account to record the transaction for that same amount, ultimately "zeroing out" and creating a record of the transaction.
We wrote entries for these concepts in the QuickBooks Encyclopedia. Have a look and let us know if you have any additional questions (we'd love your feedback for how we can improve it). Do keep in mind, this is the definition for US accounting principles. I am not sure if Canada has a different process.
To your second point, when you switch over from other software, you generally close the books on the old software so you have the record and then enter new beginning balances for your new accounts in QuickBooks. It's best to do this at the end of a fiscal year so you "start fresh" and won't have to reference both pieces of software to track the same streams of income or expenses. When you create a new account, you can designate the opening balance and the "as of" date:
For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), 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
Equity accounts, the type and function used in sole proprietors and partnership accounting, are NOT the same as what is used in an c- or s-corp, regardless of what intuit says in the screen shot. They are not even called equity in corporation accounting and have restrictions on their use that is not applicable to sole proprietors or partners.