Owner's Contribution - Corporation

[Lynne Lepage]

Hi All,

When a Corporation opens up a new business and makes a Deposit to the
Business Account to open a brand new account. Do they post the Deposit
towards "Owner's Contribution"?

Thanks, Lynne

 

[Paul Thomas, CPA]

When a Corporation opens up a new business and makes a
Deposit to the Business Account to open a brand new account.
Do they post the Deposit towards "Owner's Contribution"?

An existing corporation? No. Not if the money came from corporate assets.

The only time "Owner's Contribution" (equity) accounts are affected are when
there are transactions to or from the owners that aren't classified as a
loan to/from the company or a stock purchase / sale with the company.

Generally transactions with the shareholders impact stock and additional
paid in capital accounts. An account called "owner's contribution" isn't
what I'd expect to see on a corporate chart of accounts.

 

[Lynne Lepage]

Thanks for the reply. I am used to doing books for Sole Proprietorship
Businesses.

Lynne

 

[Paul Thomas, CPA]

Let's say the owner of a corporation (a restaurant) funds the
company bank account with personal assets.

Assuming that the corporation has already been capitalized - meaning that
the shareholders have already paid for their stock - then I'd be inclined to
treat this transaction as a loan, and the withdrawal (below) as a reduction
in the loan.

Unless there is a legal reason to have more capital on the books I see no
purpose in booking it as a capital transaction.

The restaurant has not opened yet, but he feels the need
to withdraw funds for personal expenses. He has worked
many hours to get the place ready for opening. Can the
withdrawn funds be considered startup expenses
(salary) or is it an equity draw?

If there is a need to generate taxable salary to the owner from money he
loaned the business, knock yourself out. I see that as counter productive
on all fronts. It sounds like reverse Enron accounting. Loan money, take
salary, pay taxes. Loan money, take salary, pay taxes.