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Senior Explorer *

Closing out Owner Investment and Distribution at end of year.

I closed the books on the first of the year, and net income was automatically moved to retained earnings as expected on the balance sheet.

 

It still shows a positive balance in owner's investment and negatives in each of the partner distribution accounts.  My thought process was to close these accounts out to retained earnings to get a clear view of the current year.  Are there any problems with doing this?

 

Just to clarify, we are a 2 person LLC filing as S-Corp.  The balance in owners investment is 50/50 start up money for the business, and the distributions taken are of equal amount taken at the same time.

 

Any help or thoughts on this are much appreciated!

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Best answer 01-25-2019

Accepted Solutions
Established Community Backer ***

Re: Closing out Owner Investment and Distribution at end of year.

you close the drawing and investment as well as the retained earnings account to partner equity with journal entries

debit investment, credit equity
debit equity, credit drawing

debit RE, credit equity for the partner share

5 Comments
Established Community Backer ***

Re: Closing out Owner Investment and Distribution at end of year.

you close the drawing and investment as well as the retained earnings account to partner equity with journal entries

debit investment, credit equity
debit equity, credit drawing

debit RE, credit equity for the partner share

Senior Explorer *

Re: Closing out Owner Investment and Distribution at end of year.

Thank you Rustler!

 

My Chart of accounts only has the following accounts for equity:

Opening Balance Equity

Owner's Investment

Owner's Pay and Personal Expenses

 - Partner Distributions (Sub a/c 1)

 - Partner Distributions (Sub a/c 2)

Retained Earnings

 

I'll add a new Owner's Equity account and do the journal entries to move everything over.   This makes more sense to keep everything in order and easy to see.  We only started September 2018, so lots of learning points getting into the swing of things.  Planning to close out each 4 week period starting this year so I should have this down pat in no time!

Established Community Backer ***

Re: Closing out Owner Investment and Distribution at end of year.

Partners have equity in the business too or they can't be partners, when someone joins as a partner they bring something to the mix, expertise valued at some amount, cash, equipment, something.

 

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

 

Experienced Member

Re: Closing out Owner Investment and Distribution at end of year.

I have a question related to this.  Do we date our Journal entries Dec 31, 2018 when we are closing the books for 2018?  Or Jan 1 2019?

Established Member

Re: Closing out Owner Investment and Distribution at end of year.

Distributions are zeroed out to Retained Earnings on Jan 1st so the 12/31 Bal Sht will show the correct Distributions and Retained Income for the year