Negative Owner's Equity?


L

Laurel

I'm a newbie to Accounting Express and I'm confused about how to do the
accounting for owner's distributions for an LLC. I'll use round numbers as an
example.
To start my company, I made a capital contribution of $1,000. It was coded
as equity under "contributions by owner."
The company made a profit, and I paid myself out of the equity account,
coding these payments as "distributions to owner." The first $1,000 zeroed
out the equity account, but any profits that are distributed after that
appear as negative equity on reports. Is that correct? Does it have to be
zeroed out at any point, and if so, how?
If an LLC pays profits to the owners, will the owner's equity always appear
as a negative number?
Thanks for any advice!
 
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D

DL

If an account has a credit & you debit that account with a greater sum then
the origonal account will show negative amount, ie
+$1000
-$5000
= -$4000
 
L

Laurel

I understand the basic accounting principle of credits and debits. I just
want to know if it makes sense to have that negative owner's equity on the
balance sheet. That negative number will just continue to grow as my company
makes more money and I draw more profit out of it. Because I have taken it
as profit, it seems like it should not be counted as "equity" because it is
no longer within the company.
 
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M

Macy

Laurel, Part of the answer depends on how you are filing your tax
return. If you are a single member LLC filling a schedule C, the
following will work for you. If you file your taxes some other way
then there are other issues.

Your equity is the sum of your contributions, draws and the life time
profit and loss. When you close a year, OA moves the net income/loss
to retained earnings. On the first day of the next year (1/1/????)
zero out your contribution/ draw accounts to retained earnings. The
retained earnings balance will now be what is "retained" in the
business.
Macy
 

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