Speak to a local CPA for details for your situation and jurisdiction, but from
what you can find in a basic accounting text book, generally both contributions
(capital investments) and distributions (draws) are equity accounts.
The tree would look something like this:
Equity
|_Opening Balances (already exists)
|_Owner’s Equity
|_Investments
|_Capital Investments
|_Reimbursements
|_Earnings
|_Dividends
|_Draws
|_Owner’s Draws
|_Retained Earnings (already exists, either actually, or virtually)
(there might be other types of Draws or Earnings which is why I show those
parent accounts with a specific child. You could just leave the child accounts
off if you don’t have need for them, and refactor later if you do. Other types
of Investments might also include land, buildings, equipment, product, etc.)
All of these accounts should be created as type ‘Equity’
A sample transaction when you make contributions to your business would be:
Dr. Cash/Checking, etc.
Cr. Equity:Owner’s Equity:Investments:Capital Investments
A sample transaction when you take a draw would be:
Dr. Equity:Owner’s Equity:Draws:Owner’s Draws
Cr. Cash/Checking, etc.
If this is a distribution of profits, (and not just a draw) then you’d use the
Dividends account:
Dr. Equity:Owner’s Equity:Earnings:Dividends
Cr. Cash/Checking, etc.
This will keep all of these transactions in the Equity part of the tree. They
will not affect Income or Expenses, but they will affect assets as money is put
into the business or taken out.
Note that Capital Investments don’t decrease as you take Draws or Dividends,
and nothing ever decreases the Draws or Dividends, but all three affect the
parent account "Owner’s Equity” balance appropriately. The Earnings & Draws
parts of the tree will generally have ’positive’ sign balances if you aren’t
reverse balancing accounts, or ’negative’ sign balances if you are. (for all
credit accounts) This is because those two accounts are ‘contra’ accounts from
normal Equity type accounts, meaning they will have the opposite balance
expected for Equity, that is, a debit balance is normal, instead of a credit
balance as normal.
But certainly, how this is setup or done is entirely dependent on your exact
form of your business and legal situation and requirements, which is why you
should really, really, really get a local CPAs advice.
Regards,
Adrien
p.s. - though it may not matter since you might not be using such a
transaction, your below example of depositing money into a checking account
wouldn’t be a credit to it. As you are increasing an asset, it would be a debit
for that side of the transaction.
> On Jan 17, 2020 w3d17, at 3:17 PM, Don Ireland <[email protected]> wrote:
>
> I'm having trouble figuring out the best way to handle owner contributions
> and distributions in gnucash. I understand them in concept but I'm just
> confused as to how the accounts get set up.
>
> My 1st thought was to create an asset account called Owner Contributions and
> another called Distributions. But then when when I take Distributions,
> unless I take the funds from this contributions account, it'll just continue
> to grow.
>
> Plus when I credit this account but deposit the money in the checking
> account, gnucash would see both as credits. So then I thought maybe it's a
> liability account but that still leaves the question as to separating the
> contributions and distributions.
>
> Do I create one account called Contributions & Distributions and credit/debit
> this single account? Is it a liability account?
> Don Ireland
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