August 31, 2017 at 5:39 pm #98761
I used $50k of my personal savings to start a sole proprietorship llc. I operated the business 2 years and eventually sold. Including sale proceeds I show a $60k profit on P&L, but I still have the $50k on balance sheet under owner equity. Since business is sold-would I not “pay myself back” the $50k essentially offsetting profits to $10k and clearing out balance sheet?
If you might elaborate on how to functionally do this on P&L/taxes. Thanks-jakeSeptember 1, 2017 at 1:53 am #99102
This is a great question. You should have recorded a loan payable on the books to reflect the personal loan that you made to the company. The loan payable should appear on your Balance sheet report to reflect that the business owes you the money.
To close your books, you need to zero out all income and expense accounts. The following two journal entries will take care of that:
Debit Income Accounts
Credit Retained Earnings
Debit Retained Earnings
Credit Expense Accounts
The net amount in retained earnings should equal the $60K profit plus whatever net/loss you had in the business since you first opened your doors. For more details on closing your books, check out our Small Business Bookkeeping Guide here:https://fitsmallbusiness.com/small-business-bookkeeping-accounting-the-ultimate-guide/
Before you write yourself a check, consult a tax professional to see what the tax liability is, if any for the business; especially if you recieved proceeds from the sale of your business.
All the Best-