Financial Software Questions? Ask IT Support for Answers ASAP
Hi from Just Answer. I'mCustomer and can assist.
Using one equity accounts is standard practice, but you could use two. Your call.
Your original capital was credited to equity, or opening balance equity. Subsequent income that the business retains will be added to it.
I like to use another equity account called draws for withdrawals you make personally. Then, at year end, close out out against your main equity account so that there is one total at year end.
Draws can be set up as a sub account of equity. Or just use the second equity account QuickBooks gives you as a default.
Additional investments debit cash and credit the second equity account. Withdrawals debit the equity account and credit cash. At year end, close the second account to the first.
I hope this covers your questions. Ask any follow-ups you need. If you're all set, please rate my response to close out your inquiry. I'mCustomer
The withdrawal can be charged to the owners equity account for the $500 withdrawal. Withdrawals will be debited to the equity account, making it go negative (a debit balance).
At year end, your business income will be credited to the same equity account, giving you a year end equity balance that will agree with your tax reporting.
The reason that single member LLC accounting has to be unclear from QuickBooks is that you have several options to report the LLC income to the tax authorities. Using a generic "equity" set of accounts allows the software to support you as a sole proprietor, C corporation or s corporation. As a single member LLC, you can choose any of the three. Each would have equity accounts, but be named differently, and easier to understand.
The first question first:
The equity account is used to net your contributions, income and withdrawals. Your sole proprietor equity is the sum of your investments and income, less withdrawals.
Now to the second:
Withdrawals have no effect on your tax reporting. If your business earns $100,000, but you don't withdraw any, you still report the income for tax purposes. The equity stays in the business until you withdraw it.