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Blue Aardvark
Level 1

Owner's Equity and Retained Earnings

I am working on an LLC that was once a partnership and now is a sole-owner LLC. There are no shareholders. I zeroed out the former partner's equity accounts and made them inactive. That leaves me with the following equity accounts:

Opening Balance Equity

Owner's Equity (OE)

>Owner's Investment (OI)

>Owner's Draw (OD)

Retained Earnings (RE)

 

All accounts have balances. I called QBO support and they suggested I move OI and OD as sub-accounts of RE and delete OE. It turns out RE cannot have sub-accounts (thanks, QBO support). Would you recommend leaving the accounts as is? How would you handle year-end closing entries?

1 Comment 1
john-pero
Community Champion

Owner's Equity and Retained Earnings

Usually suggested for Member equity (even a sole participant of an LLC is a member instead of owner but that is not important) is a set of 4 equity accounts per member.

Equity (summing parent never posted to)

>Member Equity

>Member Draw

>Member Contribution

 

What you have is certainly workable and I would not change it to change it.

OBE is only used when first setting up books. At end of first year that should be transferred to Equity although if you still have OBE you probably did not properly pay off the former partner their fair share. 

 

You do not have to zero contribution and draw annually on first day of new year but it can be helpful to keep track annually of personal funds movement. Otherwise these accounts certainly can always have a balance.

 

At year end profit or loss is posted to RE. From there it is distributed as equity increase or decrease to all members based on their ownership. In your case 100% of RE should be transferred to OE.

 

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