I have a new client who just formed an LLC (and made s corp election).
Prior to forming the LLC and making the s corp election in September 2020, they had a Schedule C business.
They have a credit card which is primarily used for business expenses with a few personal here and there. My question is about recording the initial credit card balance in quickbooks.
I have currently recorded the initial credit card balance as follows:
DR Due from Shareholder (asset for llc) XX (amount here is the credit card balance at date of LLC formation)
CR Credit card liability XX (same as above)
Activity after this date has of course been entered as a debit to appropriate expense accounts, but this initial balance and payoff is what I want to make sure I have recorded correctly.
There is a payment on that same credit card made by the owners personal funds (which is where business income has been deposited up until the September formation of the LLC - future business income will be going into the LLC bank account). To record this credit card payment by the owner I have done the following:
DR Credit card liability XX
CR Due from Shareholder (asset account) XX
There remains a small balance in the due from shareholder account.
My question - have I done this correctly in entering the credit card balance as an asset to the LLC in a due from SH account? And then subsequently reducing that asset since the shareholder then paid the balance of the card from their personal account?
Let's start at the beginning. And my interpretation. (Which may or may not be correct)
You do not make an S corp election from an LLC, but from a C corp. You elect for a LLC, which remains as an LLC, to be taxed as if it were an S corp but that does not convert it to an S corp and all operations as an LLC continue except the member/sharehokder is now an employee.
You can convert an LLC to a s corp but you have a brand new FEIN and "sell" your LLC to the S corp.
If now being an S corp not even a dime of personal funds should appear on the books except as stock value or shareholder loan. The personal cc should be taken off the books and replaced with a card in the name of the corp.
The attorneys created an LLC for her company and then filed form 2553. So, I believe I misspoke and should have said that the LLC is electing to be taxed as an S Corp (we will file a short year from 1120 S for 2020).
In this case - do we still completely remove the card and start over with a card in the LLC name?
Forgive me but I had another question come up - Additionally, when the LLC was formed the client also created a new bank account in the name of the LLC and transferred exactly 10,000 to that account to cover payroll etc. - the client does expect to be paid back. I was going to classify this as Due to Shareholder and I believe since it does not exceed 10k then interest does not need to be charged. Is that correct?