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Anonymous
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How do I track initial owner investment and offset opening expenses?

Hi there,

 

Apologies if this is answered elsewhere but I’m very new to this and haven’t got the full understanding on terminology etc.

 

3 partners started a very small business and each of the 3 of us has invested a small amount up front (let’s say $1,000 for example). 2 of the partners transferred $1k each into the business account, however Partner #3 only transferred $600 as there were $400 worth of upfront business expenses that needed to be paid for before the business account was set up. Basically each partner has invested the same amount of $1,000 total.

 

Questions:

  • How do I go about tracking/inputting the $400 in business expenses incurred personally by Partner #3 into Quickbooks? I’d like all business expenses to be tracked through Quickbooks. Note: that partner does not need reimbursement for these expenses since the amount has been balanced with the reduced initial deposit of $600 into the business account.
  • We plan to repay the initial investment to each partner ($1k each) at some point. How would I go about tracking repayment to each of the partners so that the books balance correctly given the question above?
  • Is that initial investment from each of the 3 partners classified as “Opening Balance Equity”?

 

Any help would be greatly appreciated

 

Thanks

D

Solved
Best answer 12-11-2017

Best Answers
Highlighted
Level 15

How do I track initial owner investment and offset opening expenses?

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

For each partner, make a deposit to the company bank account and use partner name equity investment as the source (from) account for the deposit, the amount is $1K each deposit

Then use write checks, do not print it is just a data entry form, change the check number to EFT, and pay the start up expenses that are already paid for.

You do not pay back partner investement.  Partners can draw on their equity as they wish, when they wish.  However, drawing equity below zero, means effectively that the partner is using some of his share of the end of year profit distribution, and many partnerships put a clause in the partnership agreement that you may not draw down to less than zero equity.  If a partner were to draw to less than zero equity, and if the partnership incurred a loss that year, the partner with negative equity would have to pay back the amount necessary to get back to zero.

View solution in original post

1 Comment
Highlighted
Level 15

How do I track initial owner investment and offset opening expenses?

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

For each partner, make a deposit to the company bank account and use partner name equity investment as the source (from) account for the deposit, the amount is $1K each deposit

Then use write checks, do not print it is just a data entry form, change the check number to EFT, and pay the start up expenses that are already paid for.

You do not pay back partner investement.  Partners can draw on their equity as they wish, when they wish.  However, drawing equity below zero, means effectively that the partner is using some of his share of the end of year profit distribution, and many partnerships put a clause in the partnership agreement that you may not draw down to less than zero equity.  If a partner were to draw to less than zero equity, and if the partnership incurred a loss that year, the partner with negative equity would have to pay back the amount necessary to get back to zero.

View solution in original post

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