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Opening Account Eqity/Retained Earnings

At the recomendation of our accountatnt we created a new set of books for 2019 for our already existing LLC, at first I was confused by the account (Opening Account Equity) but after some research online I finally figured out it's purpose and function. I have the account balanced down to the profit/loss (Retained Earnings) from the previous year as the ballence in OAE. In our case we lost (xxxx.xx) in our first (sart-up) year so we are showing that amount -xxxx.xx as a balance in OAE that obviously has not been closed out to Retained Earnings. I statrted making a journal entry to transfer this loss to RE but QiuckBooks gave me a waning that RE should be an auto entry from an equity transaction and was I sure I wanted to proceed? I didn't end up making the journal entry and have the following questions,

  1. Did I miss entering retained earnings when I set up the new file?
  2. Should this loss be a debit to member equity and if so, how do we keep track of our initial investment (our own funds we put into the LLC that we can draw out with no tax consequence)?
  3.  Should I make the journal entry regarless of the warning?
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Best answer 07-22-2019

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Established Community Backer ***

Re: Opening Account Eqity/Retained Earnings

Let's start with GET A NEW ACCOUNTANT, one that won't make you open a new set of books each year. Why on earth would you reinvent the wheel? Shame on that person you paid good money to. Only reason for a new set of books is if you changed software. Now to your questions 1. No. Retained earnings is an automatic entry - you do not make the entry 2. Loss is just a loss and is recorded on the K-1 per each member's percent of ownership. It is pass through. The company itself does not actually have a profit or a loss. You need 4 equity accounts for each member, a parent summing equity account that is not posted to, and three sub accounts >>>>MemberX Equity, MemberX Draw, MemberX Contribution. On day one of each new year you roll draw and contribution into the other equity account. And yes, the profit or loss is distributed from retained earnings into each member's equity. There is never ever any tax consequence for any funds paid out to any or all members. It is all Draw. 3. No. OBE (Opening Balance Equity) is a special account used when transferring an existing company balance sheet into a new QB company file. You do not perform any rebalancing of it. It's total should equal the total company equity on day of record, in your case 1/1/19

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4 Comments
Established Community Backer ***

Re: Opening Account Eqity/Retained Earnings

Let's start with GET A NEW ACCOUNTANT, one that won't make you open a new set of books each year. Why on earth would you reinvent the wheel? Shame on that person you paid good money to. Only reason for a new set of books is if you changed software. Now to your questions 1. No. Retained earnings is an automatic entry - you do not make the entry 2. Loss is just a loss and is recorded on the K-1 per each member's percent of ownership. It is pass through. The company itself does not actually have a profit or a loss. You need 4 equity accounts for each member, a parent summing equity account that is not posted to, and three sub accounts >>>>MemberX Equity, MemberX Draw, MemberX Contribution. On day one of each new year you roll draw and contribution into the other equity account. And yes, the profit or loss is distributed from retained earnings into each member's equity. There is never ever any tax consequence for any funds paid out to any or all members. It is all Draw. 3. No. OBE (Opening Balance Equity) is a special account used when transferring an existing company balance sheet into a new QB company file. You do not perform any rebalancing of it. It's total should equal the total company equity on day of record, in your case 1/1/19

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Community Explorer **

Re: Opening Account Eqity/Retained Earnings

Many Thanks! Too late to addres the issue of setting up new books but you have helped me clear up all the issues I inquired about. We did have the equity structure that you recomended already in place and I have NO PLANS to start a new set of books for 2020, if instructed I will indeed be changing accountants. Thanks again! Tate9119

Established Community Backer ***

Re: Opening Account Eqity/Retained Earnings

Glad to help. You can "close" the books for your fiscal year once all entries are in, which prevents you from changing things while taxes are being prepared
Community Explorer **

Re: Opening Account Eqity/Retained Earnings

Will do, thanks!

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