I have read many posts trying to fully understand how to best close out accounts related to Member Equity contributions, Draws, and Net Income in QBDT for my Single Member LLC.
I have the following in my COA:
Net Member Equity
>> Member Equity
>> Member Contributions
>> Member Draw
There is also an account named Retained Earnings
Currently, the Member Equity balance is zero, the Member Contributions balance is basically the sum of all contributions I made over the multiple years I have operated the business, and the Member Draw balance is the sum of all the draws I have taken over the years. The Retained Earnings balance from 2022 looks to equal the sum of the Net Income from 2021 and the Retained earnings from 2021.
The balances as of 12/31/2022 are:
Member Equity 0.00
Member Contributions 37,794
Member Draw -188,601
Based on some posts I have read here, I think I am supposed to close out on the 1st of the year per the following:
1. Clear equity drawing to equity, by a journal entry:
debit Member Equity, credit Member Draw 188,601 (What about the negative sign?)
2. Clear contributions to equity, by a journal entry:
debit Member Contributions, credit Member Equity 37,794
I also read that Net Income should be closed out into Equity, but am not sure about that. Also, I think the Retained Earnings account is built in, I don't remember setting that up, and QB automatically increases Retained Earnings by the sum of the previous years Retained Earnings and Net Income.
I also read that LLCs treated as sole proprietor should not use retained earnings account.
Please help me understand the entire picture here? Do I have this set up correctly, and what are all the journal entries I need to make each year? Thank you.
