Accounting Question

[mcp6453]

For complicated reasons, I have to pay a personal account out of my
business checking account, so I need to reimburse the company for the
expenditure. When I take money out of the company, I categorize it as a
draw. Now that I need to put money back in, what the the proper
categorization of a negative draw? Credit to Owner's Equity?

Thanks

 

[Allan Martin]

For complicated reasons, I have to pay a personal account out of my
business checking account, so I need to reimburse the company for the
expenditure. When I take money out of the company, I categorize it as a
draw. Now that I need to put money back in, what the the proper
categorization of a negative draw? Credit to Owner's Equity?

Crediting your draw account is fine. Some companies set up an equity account
called owners contributions and credit that account when monies are put in
during the year.

 

[!]

Some people like to use separate accounts for draws, "contributions",
and the cumulative balance forward from prior years (retained
earnings). All are part of "Owner's Equity". Some people prefer to
combine 2 or more of these accounts in a single account. You can do
as you or your accountant prefer, and call the account(s) anything you
wish.

 

[Spence]

Since the intent here is clearly a short-term loan, I would credit the
same account (draw) as you debited when you paid the bill.

 

[mcp6453]

Crediting your draw account is fine. Some companies set up an equity account
called owners contributions and credit that account when monies are put in
during the year.

Thanks to all who replied. Follow on hypothetical question with regard
to the value of inventory. Since aging inventory can be legitimately
valued high or low within an acceptable range, based on its estimated
value and likelihood of being sold, does a higher inventory at the end
of a year increase or decrease taxable income? (Obviously the correct
answer is to value correctly, but sometimes it is not possible to
determine the perfect valuation.)

 

[Allan Martin]

Thanks to all who replied. Follow on hypothetical question with regard to
the value of inventory. Since aging inventory can be legitimately valued
high or low within an acceptable range, based on its estimated value and
likelihood of being sold, does a higher inventory at the end of a year
increase or decrease taxable income? (Obviously the correct answer is to
value correctly, but sometimes it is not possible to determine the perfect
valuation.)

The lower the value of your ending inventory the lower your income.

 

[mcp6453]

The lower the value of your ending inventory the lower your income.

Thanks. Makes sense, of course.