what's the difference between owner equity and just receiving monitary gifts from the owner?


S

Sunfire

Wha'ts the difference between owners equity and just receiving monitary
gifts from the owner? I.e. the owner takes $190 and puts it in the checking
account. Sort of like the owner of the business donated to the business. How
do you exactly deal with this? When I looked at owner equity I was told that
it is what the business owes the owner. I don't need this, I just needed to
record a finincial gift to the business.

s
 
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P

P Ferguson

Owners equity represents the amount others have invested in the company
(stockolders) and/or the owners share of the company's income/loss. I've
never seen anybody just 'gift' money to a company. Instead, this should
either be recorded as a liablity to the company (because the company will pay
back the $190 later) or as in increase to the owners equity account. It may
seem insignificant at the time of the 'donation', but without accurately
recording the equity portion you will not have a true picture of each owners
portion of the company. It is very important to have the correct amount of
owners equity when/if the company is sold as well as for tax purposes.

Hope this helps...equity is a rather complex process and is difficult to
explain in email.
 
S

Sunfire

Yea, but what if you expect to use the money in the everyday working of the
business? I mean, that's what the money is used for. We didn't give money
just to have it sit in an account doing nothing. We gave it to help cover
some bills/expenses. Can that be done with owner equity?
 
P

P Ferguson

Yes, it can. The entry would be as follows:

Debit: Cash

Credit: Owners Equity
 
P

P Ferguson

That is a whole new issue. There are a lot of things I would need to know,
such as if you are organized as a C corp, S corp, LLC, Partnership, etc.

My advice is to find a local CPA and let them run the books so you can focus
 
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S

Sunfire

its an llc and cant afford an accountant...
P Ferguson said:
That is a whole new issue. There are a lot of things I would need to know,
such as if you are organized as a C corp, S corp, LLC, Partnership, etc.

My advice is to find a local CPA and let them run the books so you can
focus
 
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W

whiterabbit

Sunfire,

I recently read a very good book called "The Accounting Game" which I think
you could benefit from. It very clearly explains accounting concepts in a way
that would would really benefit the type of questions you were asking here.
 

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