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!

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

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?

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

@Anonymous 

Yes you would

I'm not sure why partners are being talked about in the reply since you said it is an S-Corp?

It states that it is a 2 person LLC FILING as an S-Corp.

If retained earnings are negative do we still debit them to partner equity?

Is a S-Corp year end close out different from a partnership?

Thanks for visiting the Community, Val24.

S-corp accounting is a lot different than a sole proprietor or partnership when it comes to ownership, documentation, and payroll. I'd suggest consulting an accountant to help and guide how to record this. Your accountant can provide more expert advice in dealing with this concern.

Just in case, I'll add these articles for future reference:

• QuickBooks Online Year-end Guide And Checklist
• Close Your Books In QuickBooks Online

Keep posting here in the Community if you have other questions. I'm always here to offer assistance. Have a good one.

This sounds correct 

I now understand how to clear out my equity account into retained earnings. My question is, I have not done this in the past two years. I want to clear it now, do I do the same steps but for each year? Thank you

Hello. I have a similar question.  For a SMLLC that needs to close out the Owner Draws - there is not enough R/E to satisfy the offset, however, there is enough in both R/E and Paid in Capital combined.  For example, Owner Draws = -$100k.  R/E = $45k. PIC = $59k.  Would the journal entry reduce the R/E to $0 and the remaining $55k reduce the PIC account? 

@rjsebrown 

Is your SMLLC taxed as a sole proprietorship (SP) or s-corp?  Your question mentions owner's draw, which is specific to SPs as well as PIC and retained earnings which are not applicable to SPs.   

The LLC is being treated as a sub s for tax purposes.  Thx!

@rjsebrown 

You should make sure that you have adequate stock basis to cover the $100K distribution.  Stock basis is more involved than just your initial investment + retained earnings.  Look at your 2022 Form 1120-S, Schedule M-2, line 8.  It will be different than your initial investment + retained earnings. Check with your CPA if it's close to avoid being taxed on the distribution - if that's a concern.

To answer your original question, just assign the payment to a '2023 - Distributions' equity account (set one up if you don't have one).  At year-end, make the adjusting journal entries to take into account income, loss, distributions, etc.