When managing an S-Corp in QuickBooks Online (QBO), it's important to set up your accounts properly to reflect the financial transactions accurately. Here's a recommended approach:
Income Account:
- Create an income account specifically for the S-Corp's revenue. This income account will be used to record your invoiced amounts.
Equity Accounts:
- Maintain the Shareholder Capital and Shareholder Distribution equity accounts as you've set up.
Expenses:
- Set up expense accounts to categorize your business expenses.
Now, let's walk through the process:
Invoice Entry:
- When you receive payments from clients, use the income account created for the S-Corp's revenue.
Salary Payment:
- Process the salary payments through your ADP service. This transaction would involve reducing the equity (Shareholder Capital) and recording the expense for salary.
Distribution:
- For shareholder distributions, record transactions directly from the Shareholder Distribution equity account.
By setting up an income account, you'll be able to generate reports to see the revenue specific to the S-Corp. The equity accounts will track the flow of funds between the S-Corp and shareholders.
When running a Profit and Loss (P&L) report, the income from the specific income account, minus salary and other business expenses, will give you a clearer picture of the taxable net income for the S-Corp.
We are QBO Consultants and provide these services on a daily basis.
