recording owner’s contributions
Thank you for your excellent course! I have a few questions which I don’t seem to be able to find a clear answer for. The case is as follows:
Two business partners found a LLC, owned 50/50 between them. To start operations, one of the partners makes the majority of the capital contributions, while the other provides the majority of the ideas and labour.
Q1. What is the correct way to record the capital contributions made by the Partners? These start-up funds are not loans; the partners will see their investment rewarded through growth of company value and dividends.
Q2. Should the non-financial contributions of one of the partners also be accounted for? Or is this recognised in the 50/50 equity split?
Many starting entrepreneurs have these questions and I am a bit surprised that there isn’s a clear answer out there somewhere. Perhaps an idea for an additional lecture?
Many thanks and kind regards,
I’m glad you liked our free QuickBooks Course! As far as capital contributions are concerned, you should set up a capital account and a draw account for each partner. Select the capital account when a partner invests in the business and the draw account when the partner takes money out of the business. Follow the steps in the how to set up the chart of accounts video tutorial which I have included a link to below: https://fitsmallbusiness.com/set-up-chart-of-accounts-quickbooks-online/
Depending on how the partnership agreement was set up, the partner that contributes labor and ideas could be paid a salary or their 50/50 share may represent payment for his/her contribution to the business; it all depends on what the partners have outlined in their partnership agreement.
All the Best-