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jhw69
Level 1

Single shareholder S-Corp Equity Accounts

I'm a single shareholder of an S-Corp. I've created the following equity accounts

 

Retained Earnings

Shareholder Capital

     Shareholder Contributions

     Shareholder Distributions

 

I pay myself a reasonable salary and understand at the end of the year I move Retained earnings, to Shareholder Capital and distributions flow from there to the shareholder. I did make a shareholder cash contribution to cover the initial expenses, but there won't be anymore since the business is generating plenty of revenue.

 

The question I have is the common stock equity account.  Do I need it? How do I value it? I'm confused about the role of the common stock equity account overall. How do I determine the opening balance of the common stock account in QB? 

Solved
Best answer February 02, 2021

Best Answers
Rustler
Level 15

Single shareholder S-Corp Equity Accounts

The best thing you can do is sit down with a tax accountant familiar with s-corp accounting, it is slightly different.

 

Your account structure needs some tweaking, in QB all parent accounts are summing accounts, they are not posted to
Change it look something like this

Capital
Shareholders
>> Shareholder Capital
>> Shareholder Contributions
>> Shareholder Distributions
Treasury Capital
Retained earnings

The contribution account should be made inactive and not used.

Technically it should be, shareholder capital, and additional paid in capital

 

The s-corp issues stock at a par value when it is organized, then the shareholder "buys" so many shares of stock.
shareholder capital - holds the value of the number of shares purchased times the par value
additional paid in capital - holds the value paid that is in excess of the par value.

treasury capital is the value of shares not purchased, and if there is an investor in the future this is what you sell to him as his investment.

 

Unfortunately QB does not keep information on the number of shares of stock owned per shareholder, so that has to be done outside of QB per shareholder

 

A stock holders meeting is held (with written minutes, yea even if you are sole shareholder, states require it at least once a year), a distribution is declared as so much per share on a specific date. Then a journal entry debiting retained earnings, and crediting distribution payable. On the pay date you issue a check and use the distribution payable account as the expense for the check.

 

Whether a distribution is taxable is more difficult subject. I depends on the amount of shareholder capital you have before and after the distribution.

View solution in original post

2 Comments
Rustler
Level 15

Single shareholder S-Corp Equity Accounts

The best thing you can do is sit down with a tax accountant familiar with s-corp accounting, it is slightly different.

 

Your account structure needs some tweaking, in QB all parent accounts are summing accounts, they are not posted to
Change it look something like this

Capital
Shareholders
>> Shareholder Capital
>> Shareholder Contributions
>> Shareholder Distributions
Treasury Capital
Retained earnings

The contribution account should be made inactive and not used.

Technically it should be, shareholder capital, and additional paid in capital

 

The s-corp issues stock at a par value when it is organized, then the shareholder "buys" so many shares of stock.
shareholder capital - holds the value of the number of shares purchased times the par value
additional paid in capital - holds the value paid that is in excess of the par value.

treasury capital is the value of shares not purchased, and if there is an investor in the future this is what you sell to him as his investment.

 

Unfortunately QB does not keep information on the number of shares of stock owned per shareholder, so that has to be done outside of QB per shareholder

 

A stock holders meeting is held (with written minutes, yea even if you are sole shareholder, states require it at least once a year), a distribution is declared as so much per share on a specific date. Then a journal entry debiting retained earnings, and crediting distribution payable. On the pay date you issue a check and use the distribution payable account as the expense for the check.

 

Whether a distribution is taxable is more difficult subject. I depends on the amount of shareholder capital you have before and after the distribution.

View solution in original post

jhw69
Level 1

Single shareholder S-Corp Equity Accounts

Thanks. This helps.

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