Hi. Thanks for the video! I saw some other youtubers put expense from personal accounts in the liability account. Due to (from) shareholder- Other liability account. But I think both are the same
Hey! Thanks for watching! Yes! In practice, the liability and equity operate the same way. To men, its all about whether you actually plan to "pay back" the owner funds. this would make a liability more attractive. Definitely check out our end to end course on the topic: www.incomedigs.com/reab ($50 off w/ code RUclips50)
Hi I have an account qb already set up and its listed as "personal expense" equity. Your video you created an account under "checking/bank". Is this going to be the same thing? Or should I created it as a bank/checking as well instead of an equity account?
Hi! Thanks for watching! This is fine...the main benefit of using the "checking/ bank" is that you can "use" that account with expense transaction types. In the checking/ bank method...you would still use a journal entry to 0 this out and "move" the balance to Equity.
Hi There! You would Debit your Credit Card and Credit "Owner's Contribution" (Equity). This can be done via a journal entry...or from the Credit card banking feed...simply indicate "Owner's Contribution" in the category field. We discuss this tactic in great detail in our end to end course: www.incomedigs.com/reab2
Hi Joan! Thanks for watching! As you make purchases with your personal card, you will log these expenses against "Owner's Equity". If doing a journal entry...Debit the expense and Credit owner's equity. When you pay any of the proceeds back, you would Credit your business Checking account and Debit Owner's Equity.
Hey Nate...Yes! You would just use that Personal spending to capture the expense in the moment. If you were to reimburse from the business, you would just Debit that account to get it to 0...this would mean you would never really need to do a journal entry to Owner's equity. Your Personal spending can track the "ins and outs" of your payments and reimbursements.
Hi Nick, I'm loving your content. How do you record your equity in the business as the business begins to pay you more than your investments? Would your Owner's Equity account show a negative, and is that proper? Or is there a different way to record this?
Hi David...thanks for watching! Yes! It is completely fine to have a negative equity account. A negative equity means that one of the owners is taking out more than has been put in.This is completely normal. In fact, in an LLC, this is THE way to pay yourself. You take out owner's draws. Your Owner's equity will act as a ledger for all the positive (contributions) and negative (distributions) activity.
How would you book a profit split with a non-owner? I recently did a BRRR and we are going to split the proceeds 60/40. They have no ownership in the property or business. Doesn't seem right to book it as an expense or a distribution!
Hey Barry....thanks for watching! I would treat this as an "Other Expense". This will push the expense to the "Other Expenses" category of the P&L...leaving your Net Operating Income. The "Other Expense" will come off your NOI to give your actual Net Income after paying off the partner's proceeds. This is definitely deductible...so you need to capture it somewhere.
@@weather.permitting You're welcome! FYI...we dive into topics like these in great detail in the community that comes with the end to end course! Check it out! www.incomedigs.com/reab2
Very comprehensive video! Do you have any explantions on how to reconcile the owner's investment? I started my business in October last year and began buying supplies in August (I was very excited to buy things, but procrastinated on the bureaucracy - stupid of me, I know), paying rent on a studio, and then had to move (house, not business) which ran through the end of the year. I made no sales, but still had expenses. I had to keep putting my own money into the business. All my entries are owner investments with a zero begining balance. I can't reconcile it because it doesnt balance, and I'm also not getting any expenses to write off. Any advice? I'm having a heck of a time trying to figure out what to do.
Hi Sophia...thanks for watching! The Owner Investment is difficult to reconcile because you don't have a comprehensive "source of truth" with which to compare. For Bank Accounts, Credit Cards, etc...you have monthly statements that state, in fact, the balance of each account. You then match QBO to those statements. With Owner's Investment, the only way to really reconcile is to ensure that you have receipts/ records of all your owner-paid for expenses. Totally those receipts/ records for a given time period should match what you have in QBO. You can surely still deduct/ write off these expenses....just ensure that you maintain a paper trail. One hybrid approach might be to keep a really simple excel/ google sheet with all expenses paid by you for the business. Link to a photo of the receipt as well. Treat this workbook as your "bank statement". Reconcile QBO against this every month.
Hey Nick! Thanks for the video. This may be a stupid question but when you create the personal spending account this way, and present this to your accountant, are they going to assume the owners equity/draws is money you’ve taken out from the business and assume it to be a taxable distribution? If so, what’s the easiest way to prevent that or show it’s just a reimbursement?
Hi Cody...thanks for watching! The video above assumes you have a passthrough entity: S-Corp or LLC. If this is the case, your owners equity/ draws are not taxable. They do not impact the profit of the business...it is simply money flowing to/ from the business...which is always allowed. You would typically be taking some sort of draw out of these entity types...this Personal Equity is just another form of those draws and/ or contributions.
Great video, Nick! Wouldn’t using a liability account (…Due to owner), instead of equity, prevent tampering with basis issues? It seems like, in your example, the taxpayer received a current tax benefit(deduction) AND their basis remained unchanged because you are crediting contributions. Maybe I am missing something. If the owner subsequently cuts a check then in that case it would right the basis situation I guess
Hey Travis...thanks for watching! A Liability account is just fine as well. I would defer to a conversation with your CPA/ tax professional on the pros/ cons/ legality of using equity vs. liability. From a balance sheet perspective...it will achieve the same result. If you treat it as a liability, you may be forced to pay yourself interest. In my experience...with my LLCs/ S-Corps...I have had no problem logging it as equity.
Hi Niobe!! Ha! I know right...."Just use the business card! That's what it's there for!". But hey, we all do it. Glad you found this workaround useful!
Check out my End-to-End Quickbooks Training. www.incomedigs.com/reab ($50 off w/ code RUclips50)
Hi. Thanks for the video! I saw some other youtubers put expense from personal accounts in the liability account. Due to (from) shareholder- Other liability account. But I think both are the same
Hey! Thanks for watching! Yes! In practice, the liability and equity operate the same way. To men, its all about whether you actually plan to "pay back" the owner funds. this would make a liability more attractive. Definitely check out our end to end course on the topic: www.incomedigs.com/reab ($50 off w/ code RUclips50)
Thank you so much for this video!!! This helped me so much, and deserves a million++++ views!
Yes! Thanks Chris! Be sure to check out our end to end accounting training for RE Investors: www.incomedigs.com/reab2
Hi I have an account qb already set up and its listed as "personal expense" equity. Your video you created an account under "checking/bank". Is this going to be the same thing? Or should I created it as a bank/checking as well instead of an equity account?
Hi! Thanks for watching! This is fine...the main benefit of using the "checking/ bank" is that you can "use" that account with expense transaction types. In the checking/ bank method...you would still use a journal entry to 0 this out and "move" the balance to Equity.
Hi Nick. Thank you for this ! How do we record paying business credit card using personal account ?
Hi There! You would Debit your Credit Card and Credit "Owner's Contribution" (Equity). This can be done via a journal entry...or from the Credit card banking feed...simply indicate "Owner's Contribution" in the category field. We discuss this tactic in great detail in our end to end course: www.incomedigs.com/reab2
How do I account for expenses we paid with our personal cards then the business reimburses us from rental income proceeds?
Hi Joan! Thanks for watching! As you make purchases with your personal card, you will log these expenses against "Owner's Equity". If doing a journal entry...Debit the expense and Credit owner's equity. When you pay any of the proceeds back, you would Credit your business Checking account and Debit Owner's Equity.
If those expenses are reimbursable each month. Could I still use Personal spending and Owner equity to offset with owner draws for reimbursement ?
Hey Nate...Yes! You would just use that Personal spending to capture the expense in the moment. If you were to reimburse from the business, you would just Debit that account to get it to 0...this would mean you would never really need to do a journal entry to Owner's equity. Your Personal spending can track the "ins and outs" of your payments and reimbursements.
Hi Nick, I'm loving your content. How do you record your equity in the business as the business begins to pay you more than your investments? Would your Owner's Equity account show a negative, and is that proper? Or is there a different way to record this?
Hi David...thanks for watching! Yes! It is completely fine to have a negative equity account. A negative equity means that one of the owners is taking out more than has been put in.This is completely normal. In fact, in an LLC, this is THE way to pay yourself. You take out owner's draws. Your Owner's equity will act as a ledger for all the positive (contributions) and negative (distributions) activity.
How would you book a profit split with a non-owner? I recently did a BRRR and we are going to split the proceeds 60/40. They have no ownership in the property or business. Doesn't seem right to book it as an expense or a distribution!
Hey Barry....thanks for watching! I would treat this as an "Other Expense". This will push the expense to the "Other Expenses" category of the P&L...leaving your Net Operating Income. The "Other Expense" will come off your NOI to give your actual Net Income after paying off the partner's proceeds. This is definitely deductible...so you need to capture it somewhere.
@@Incomedigs Thank you!
@@weather.permitting You're welcome! FYI...we dive into topics like these in great detail in the community that comes with the end to end course! Check it out! www.incomedigs.com/reab2
Very comprehensive video! Do you have any explantions on how to reconcile the owner's investment? I started my business in October last year and began buying supplies in August (I was very excited to buy things, but procrastinated on the bureaucracy - stupid of me, I know), paying rent on a studio, and then had to move (house, not business) which ran through the end of the year. I made no sales, but still had expenses. I had to keep putting my own money into the business. All my entries are owner investments with a zero begining balance. I can't reconcile it because it doesnt balance, and I'm also not getting any expenses to write off. Any advice? I'm having a heck of a time trying to figure out what to do.
Hi Sophia...thanks for watching!
The Owner Investment is difficult to reconcile because you don't have a comprehensive "source of truth" with which to compare. For Bank Accounts, Credit Cards, etc...you have monthly statements that state, in fact, the balance of each account. You then match QBO to those statements.
With Owner's Investment, the only way to really reconcile is to ensure that you have receipts/ records of all your owner-paid for expenses. Totally those receipts/ records for a given time period should match what you have in QBO.
You can surely still deduct/ write off these expenses....just ensure that you maintain a paper trail.
One hybrid approach might be to keep a really simple excel/ google sheet with all expenses paid by you for the business. Link to a photo of the receipt as well. Treat this workbook as your "bank statement". Reconcile QBO against this every month.
Hey Nick! Thanks for the video. This may be a stupid question but when you create the personal spending account this way, and present this to your accountant, are they going to assume the owners equity/draws is money you’ve taken out from the business and assume it to be a taxable distribution? If so, what’s the easiest way to prevent that or show it’s just a reimbursement?
Hi Cody...thanks for watching!
The video above assumes you have a passthrough entity: S-Corp or LLC. If this is the case, your owners equity/ draws are not taxable. They do not impact the profit of the business...it is simply money flowing to/ from the business...which is always allowed. You would typically be taking some sort of draw out of these entity types...this Personal Equity is just another form of those draws and/ or contributions.
Great video, Nick! Wouldn’t using a liability account (…Due to owner), instead of equity, prevent tampering with basis issues?
It seems like, in your example, the taxpayer received a current tax benefit(deduction) AND their basis remained unchanged because you are crediting contributions.
Maybe I am missing something. If the owner subsequently cuts a check then in that case it would right the basis situation I guess
Hey Travis...thanks for watching! A Liability account is just fine as well. I would defer to a conversation with your CPA/ tax professional on the pros/ cons/ legality of using equity vs. liability. From a balance sheet perspective...it will achieve the same result. If you treat it as a liability, you may be forced to pay yourself interest. In my experience...with my LLCs/ S-Corps...I have had no problem logging it as equity.
Thanks for this work around! My husband drives me crazy by paying for property expenses with the personal credit card #$%^&*
Hi Niobe!! Ha! I know right...."Just use the business card! That's what it's there for!". But hey, we all do it. Glad you found this workaround useful!