Please help me... Our income statement showed a net loss and my boss said he doesn't like net loss so he asked me to transfer his unpaid/payable salaries to one of our equity account "additional paid-in capital" - is this correct in order to get rid of negative, i.e., net loss amount? If this is not possible, can you kindly please advise a solution how I could get rid of net loss please?
Net Loss in Income Statement
- Thread starter tayyert
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Your boss's proposal won't relieve the loss on the PnL. Dropping the accrued liability down into the equity section is purely a balance sheet move. It will indeed cancel the effect of the loss with respect to the equity, but the PnL will continue to show the expense, and hence, the loss.
The end result is identical to one in which the company paid his salary to him (and booked that expense on the P&L), and he immediately contributed the cash back to the company as additional PIC.
His suggestion that you reclassify the accrued payable as an equity contribution, implies that he doesn't intend on actually receiving that salary. If that's the case, you could simply cancel the original salary expense / accrual. This would pull that expense off the PnL and thereby reduce / eliminate the loss.
The end result is identical to one in which the company paid his salary to him (and booked that expense on the P&L), and he immediately contributed the cash back to the company as additional PIC.
His suggestion that you reclassify the accrued payable as an equity contribution, implies that he doesn't intend on actually receiving that salary. If that's the case, you could simply cancel the original salary expense / accrual. This would pull that expense off the PnL and thereby reduce / eliminate the loss.
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Hello ArcSine: May I ask if it's possible then to simply pay boss' salary then immediately deposit as "additional paid-in capital" in case the accrued salaries could no longer be cancelled as they are associated with all social insurances, w/h taxes etc. already... Actually, I'm surprised to see my question here - I posted this Q in other accounting forums & got no reply and surprised to see an answer here so I guess this is the forum I should visit from now as members are actually responding
very happy though to see your kind reply & suggested solution & hope U can answer my next Q above... big thanks Sure, your proposal would clear the liability off the books, while simultaneously (as a result of boss's "give back" of the salary) prevent a depletion of cash, and boost the Bal Sheet's equity back to its pre-salary level.
However, OP mentioned "...Our income statement showed a net loss and my boss said he doesn't like net loss..." The method you describe would leave the boss's salary expense on the P&L, and hence the P&L loss would remain.
I agree that once taxes have been withheld and remitted, payroll reports filed, etc., then unwinding a salary check becomes a tricky and time-consuming proposition. Boss might need to re-evaluate just how much he values having a "loss-free" P&L!
However, OP mentioned "...Our income statement showed a net loss and my boss said he doesn't like net loss..." The method you describe would leave the boss's salary expense on the P&L, and hence the P&L loss would remain.
I agree that once taxes have been withheld and remitted, payroll reports filed, etc., then unwinding a salary check becomes a tricky and time-consuming proposition. Boss might need to re-evaluate just how much he values having a "loss-free" P&L!
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Many thanks ArcSine for your kind & enlightenment on this as well. Can I ask another Q?
Since U mentioned of equity accounts... What is the difference of Capital & Additional paid-in capital? If we would like to increase our capital - can we just enter to our Capital account? Why do they have "Additional Paid-In Capital?
Since U mentioned of equity accounts... What is the difference of Capital & Additional paid-in capital? If we would like to increase our capital - can we just enter to our Capital account? Why do they have "Additional Paid-In Capital?
The distinctions between the individual components of an Equity section (e.g., Common Stock, Add'l Paid-in Cap, and so on) are largely a traditional carryover of the need for corporations to separately track things like the par value of issued shares, vs. amounts paid by investors over the stated par value, etc.
A lot of smaller, closely-held companies like to distinguish between the capital the founders initially put into the company at start-up, versus any subsequent capital infusions they make down the road to "feed the kitty" when corporate cash gets low. These companies will frequently use two separate Equity accounts to keep track of the two, and a lot of times they'll use the title "Additional Paid in Capital" for the account into which the subsequent capital investments are credited.
They could just as well call these two Equity accounts "Start Up Investment" and "Later Investments", but "Capital Stock" and "APIC" sound cooler, and besides, it's what the big corporations all have on their balance sheets
Set up your Equity section in whatever manner is most useful and meaningful to the owners of your company. For example, I recently worked with a client that had 3 different types of Owners' Draws accounts and several different kinds of Owners' Investments accounts in the Equity section of the Bal Sheet. Why? Because they were fanatical about keeping track of every different type of Draw and Investment. I explained to them that they could just as easily keep track of all these differences on a spreadsheet, and thereby streamline their balance sheet down to just two or three Equity accounts. But they were adament about seeing all those different accounts right there on the face of the Bal Sheet.
Point is, use whatever arrangement (including account names) that gives the owners the info they want. One caveat: If you also furnish financials to outside parties (investors, lenders, banks) check the contracts and the loan agreements to see what kind of financial statement presentation they require---it may be different than the internal financials you give to the owners.
Cheers!
A lot of smaller, closely-held companies like to distinguish between the capital the founders initially put into the company at start-up, versus any subsequent capital infusions they make down the road to "feed the kitty" when corporate cash gets low. These companies will frequently use two separate Equity accounts to keep track of the two, and a lot of times they'll use the title "Additional Paid in Capital" for the account into which the subsequent capital investments are credited.
They could just as well call these two Equity accounts "Start Up Investment" and "Later Investments", but "Capital Stock" and "APIC" sound cooler, and besides, it's what the big corporations all have on their balance sheets
Set up your Equity section in whatever manner is most useful and meaningful to the owners of your company. For example, I recently worked with a client that had 3 different types of Owners' Draws accounts and several different kinds of Owners' Investments accounts in the Equity section of the Bal Sheet. Why? Because they were fanatical about keeping track of every different type of Draw and Investment. I explained to them that they could just as easily keep track of all these differences on a spreadsheet, and thereby streamline their balance sheet down to just two or three Equity accounts. But they were adament about seeing all those different accounts right there on the face of the Bal Sheet.
Point is, use whatever arrangement (including account names) that gives the owners the info they want. One caveat: If you also furnish financials to outside parties (investors, lenders, banks) check the contracts and the loan agreements to see what kind of financial statement presentation they require---it may be different than the internal financials you give to the owners.
Cheers!