How To Structure the Equity Section of Your Balance Sheet in QuickBooks Online

Index
06:00 Screen sharing begins
06:20 Setting up equity accounts in the chart of accounts
07:30 Contributions vs distributions and capital
09:48 Adding in an additional chart of accounts for equity
11:10 Always check consistency of naming the chart of accounts
16:00 Equal owner example
16:42 Profit and loss, viewing net income
17:00 Balance sheet showing equity accounts in retained earnings
18:00 Dividing net income by 3 shareholders
18:37 Preparing journal entry showing 3 shareholders divided income in their capital account
19:50 Viewing the balance sheet
22:13 Changing perception of clients
23:10 Removing clients obstacles from a bookkeeper perspective
29:50 Close the books with password
30:25 Balance sheet review from 18:37
31:30 Creating parent equity account
33:37 How do you consolidate the capital chart of accounts
36:41 Protect your s-corp client
43:25 Overall recap for protecting clients
45:46 Client under scrutiny, have bulletproof questions
51:00 Trust client's intuition when "something doesn't look like"
52:24 How do the loans from shareholders play a part in this?
54:55 Should there be interest on the loans?
56:53 Two people to consult when deciding to choose an entity type
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[@accountant110]

Your videos are extremely helpful!

[@nerdenterprises]

Thank you Alex!

[@accountant110]

@@nerdenterprises Are the contributions/distributions still okay to use for an S-Corp even though Schedule L lists capital stock, additional paid in capital, and RE on the 1120S tax return?

[@nerdenterprises]

@@accountant110 yes, that's just going to be a mapping issue from the books to the taxes

[@user-kv7ks8tr6b]

I have watched a TH-cam video were they are advising to close out distributions to retained earnings. Should the contributions and distributions accounts be closed to zero each year or should they be accumulation accounts?

[@nerdenterprises]

Some people feel this is the way to handle it. I don't agree. I think it is much cleaner to go the other way if anything, and close earnings out to the capital accounts each year.
This way I can clearly see contributions, distributions, and cumulative earnings.
If I need to see the details of the current year (which I believe is why many people want to close out to R/E) I can drill into any number and see that current year's activity. And I can see any other date range in that detail report by adjusting the dates.

[@arashmohammadi471]

Thank you so much for such great and helpful videos,
by the way i have a question, how if a partnership company with 3 partners have not done any distribution or equity transactions to show how much each partner should be on their accounts? and one of the partners want to leave the company.
for more details , if the accounts have not been reconciled and opening ballance equity also has a huge balance.
what is the best thing to do?
i highly appriciate your help.

[@nerdenterprises]

This sounds messy, and the reality is the company will need to hire an attorney to sort all of this out. But first they will need you to get the books cleaned up and reconciled.
That's the first job.
Then for Open Balance Equity you will need to dig into the transaction details and see what's in there. It may in fact be beginning balances that were transferred onto the books. You'll have to pick it apart piece by piece and figure out how it should be handled. Those balances may need to be divided up between the owners based on their percentage of ownership.

[@tabithazurita288]

What is the point of the top capital account within the capital accounts (Ex: "Shareholder Capital - Matthew Fulton"). To me it seems the same as the account it's under (Matthew Fulton Capital). You mentioned a benefit to separating them...but what's the difference? Aren't they each the same total?

[@nerdenterprises]

The top level account is just the parent account whose only purpose is to host the sub-accounts. The sub-account for "Capital" is where you post the closing entry to close out Net Income for the year. If there are more than one shareholder you divide the net income / (loss) each year into their respective capital accounts in proportion to their ownership. This account should ONLY contain the annual entries to close out net income. Then that, plus the contributions and distributions account roll up to the parent account. So the Shareholder's section ultimately represents the total value of their equity in the business with a nice break down of where that comes from.

[@perlagandarilla448]

Would you add a sub-account (perhaps shareholder x personal expenses) for shareholders who pay personal expenses with the business account or would you just take it to distributions? What would you recommend?

[@nerdenterprises]

I have done this in some cases.
On the one hand it can be really useful to see their personal expenses that were paid by the business broken down.
On the other hand, you are sort of calling out the fact that they paid for personal expenses with business funds and that can work against you in an audit.

[@ianharkins2172]

I notice you mentioned that if you have a single owner, you don't need to make closing entries to the individual capital accounts. If an S-corp has a single shareholder, should money be left in retained earnings? Also, is it necessary or recommended to still set up the capital accounts like you have shown in this video, even for an s-corp with a single shareholder?

[@nerdenterprises]

Whoa! So sorry I must have missed this.
Hopefully I can still help. I always try to look ahead and anticipate what I might be doing in 5 years. If I think there is event he slightest chance that I will take on additional shareholders, then the best thing to do is set it up accordingly now. Even with one shareholder this will still bring real clarity to the Equity section of the balance sheet.

[@DannaOwen]

Why not make the BS two dimensional by using class?

[@nerdenterprises]

You could certainly do that. The question is what are you trying to show with the classes?