Moving Retained Earnings to Owner Equity

sgfee123 · ‎August 20, 2021

Hello Quickbooks Community,

Please help with a question.

$100,000 was moved directly from retained earnings to owner’s equity on New Year's Day.

Technically, this means the LLC made a distribution to its members then the members immediately made a contribution to the LLC. However, no money ever left the LLC. Is the $100,000 considered a distribution by the LLC, a contribution from the members, both or neither?

Follow-up question. Do members need to vote before making this kind of money movement?

Thank you for your help,

Steve F.

Rustler · ‎August 21, 2021

LLC has nothing to do with it, LLC is just a state legal registration that has nothing at all to do with how the business is done.

If the LLC files as a sole proprietor or a partnership, there is no such thing as a distribution. Retained earnings is transferred to the owner/partner in the proportion stated (partnerships) in the registration document, using a journal entry.
debit RE and credit the correct equity account (if there was a profit for the year).

There is no voting on the subject of retained earnings being transferred to the owner/partner.

View solution in original post

Rustler · ‎August 21, 2021

LLC has nothing to do with it, LLC is just a state legal registration that has nothing at all to do with how the business is done.

If the LLC files as a sole proprietor or a partnership, there is no such thing as a distribution. Retained earnings is transferred to the owner/partner in the proportion stated (partnerships) in the registration document, using a journal entry.
debit RE and credit the correct equity account (if there was a profit for the year).

There is no voting on the subject of retained earnings being transferred to the owner/partner.

sgfee123 · ‎August 21, 2021

Thank you for your help Rustler! You have answered my questions.

JBran · ‎September 22, 2022

Hi Russ. Thanks for all your insights on the forum. Let's say my 50/50 profit/loss LLC partner and I have a net loss making retained earnings -$10k in the new year. If our capital accounts are $2k and $8k respectively, would I credit RE $4k, debiting each capital account $2k? This would leave CAs $0 and $6k respectively, with a -$6k balance in RE. Or would I credit RE the full $10k, debiting each capital account $5k for a balance of -$3k and $3k respectively? Not sure if CAs can go negative as this would distort "Beginning & Ending Capital %" on line J of the K-1, right?

Topics

Training

Community

Resources

Moving Retained Earnings to Owner Equity