LLC Member Capital and Distribution Accounts

I am doing the same and would appreciate any advice.

An LLC with multiple members files taxes on a Partnership 1065 tax return (in most cases unless they have filed a special form to Elect to be taxed as an S corporation). You track the members equity the same as a Partnership.
You need to create new Equity accounts for each partner as follows:

Partner A Contributions
Partner A Draws
Partner A Equity

Partner B Contributions
Partner B Draws
Partner B Equity

You don't need Common Stock or Paid In Capital (unless it's filing as an S corp) and the Retained Earnings each year is zeroed out into each partner's Equity account in his proportionate share. The Contributions and Draws for each year are also closed out to the Equity account for each partner and begin anew each year. These closing entries are best done with a January 1 date so last year's reports remain correct if you are looking at them later on. The above partner's equity activity is shown on their individual forms K-1 that they receive from the partnership when the tax return is done. They show the partner's beginning equity balance, any contributions, draws and their share of the income and an ending equity balance. So your books should have the same information.

How do you record the transactions within the company? For instance, I have an LLC and want to transfer 10,000 from the member's distribution to the member. What steps do I have to go through to document that I took money from the checking account, distributed it to the member, then provided the cash to the member?

Thanks

Using Write Checks, issue the member a check and charge the Member's Distributions equity account with that check. If you actually then cashed this check, where did those funds come from?

this is company profit that the member wants to take as cash.

When he cashes the check at the bank, he will be taking the company profits. The members draw check IS company profits. You don't have to actually CASH the check for him.

I created an equity sub account for each member and then a sub account for draw and distributions. At the end of the year I take the profit distributions and debit it from our income account to put it in our members equity accounts (crediting it). I don't do anything else with the draw and contributions account. Except for profit distributions (which increases equity), the equity account for each member indicates the contributions minus thier draw. Does this seem ok?

I'm an engineer trying to do accounting for tax purposes. Someone who does accounting told me to do this.

Your situation is different from the other person above you. You have the right idea but you're using the wrong accounts. The QuickBooks program will close out the Income and the Expense accounts for you into the Retained Earnings equity account at year end. The account that you need to be zeroing out into the different members equity account is the Retained Earnings account, not the Income account. The balance of Retained Earnings needs to be divided between the members in their proportionate share and this entry should be dated the first day of the new year so last year's reports are still correct if you need to run them again. You also want to zero out or Close any Members Draws accounts into their main equity account at the same time. It starts over again each year.

So If I am an S-corp, then I'll just create the follwing account:

Shareholder A Paid-In-Capital
Shareholder A Draws
Shareholder A Retained Earnings - Porportionated

Shareholder B Paid-In-Capital
Shareholder B Draws
Shareholder B Retained Earnings - Porportionated

Is this correct?

I have a similar question except the LLC is a single-member LLC. Should the Equity accounts be the same, i.e. Member Equity, Member Draws, & Member Contributions?

Also is the closing the same, i.e. Retained Earnings zeroed to the Member Equity account as well as the Member Draws and Contribution zeroed to RE also?

Any help would be appreciated!

In a Single Member LLC, the
b Draws and Contributions
can be closed
b into
the RE account as of the first day of each tax year for the prior year's balance. A Single Member LLC normally files a Schedule C Sole Proprietorship tax return so the equity doesn't have to be tracked separately.
If the LLC files as an S corp, then it does.

My question is a little different but related. I just converted data from Quicken to QB Pro 2007. I "tricked" Quicken (which does not all creation of Equity accounts) by creating 6 "liability" accounts that were in fact 6 capital accounts for 6 partners in an LLC, taxed as a partnership, not an S-Corp. At the end of both 2004 and 2005, I again "tricked" Quicken by creating a liability account called "net income or net loss" that reflected the actual losses we had for each year with corresponding proportionate subtractions from each partner's Quicken "liability" capital account.

When I converted the Quicken data to QB, I ended up with 6 liability (capital) accounts for each of the 6 partners, and a liability account showing the net cumulative loss for '04 & '05. The liability (capital) accounts are easy to transfer to Equity capital accounts, but I'm not sure what I should do with the "liability" net income or net loss account I'd been so clever to create in Quicken. I think I need to proportionately transfer from the "liability" net income or net loss account the amount of the net loss that was on each partner's K-1 for each of '04 & '05 tax returns to zero out that clever liability account, then reverse those same amounts by transfering from the retained earnings account that got generated by QB on conversion (the generated R.E. amount is the same amount as the "liability" net income or net loss account).

I just did the conversion from quicken a few days ago, so what dates should I use for the journal entries if this is the right approach?

I have a related question: I am the sole member of a Single Member LLC, which is currently showing a profit and I expect it to always show a profit moving forward. I?d like to make regular (monthly) interim profit distributions (not salary or other compensation, but more like a monthly dividend) to myself as the sole member. Retained Earnings are currently zero (the LLC was set up only 2 months ago) and the Member?s Equity account only shows my initial capital contribution. I cannot do a journal entry debiting Net Income. How do I go about this in terms of the accounting entries each month in QuickBooks?

I thought it would work something like this:

Step 1: credit Member?s Equity or Retained Earnings; debit Net Income (problem: QuickBooks does not let me debit Net Income to transfer money from Net Income to Retained Earnings or to Member?s Equity)

Step 2: debit Member?s Equity or Retained Earnings; credit Bank/Checking

You can set up your equity account with sub accounts like this

3000 Owner Equity
3100 Current Contributions (sub to 3000)
3200 Current Draws (sub to 3000)

Then, write yourself a check and hit 3200.

The sub accounts close to 3000 at year end (let your tax preparer advise on this)

Don't post to Retained earnings. .. that will be the accumulation of your net income/loss from year end.

Your tax preparer may instruct you to close the retained earnings to owner equity on the first of the new year, but make sure that is what he(she) wants you to do.

Hope this helps,

Laura

Thanks, this is very helpful. One question though: Your approach will result in a negative amount in the equity account during the year. I think this will be fixed when retained earnings are closed to the equity account at the end of the year/on Jan 1 the following year. Is this correct?

Yes. . .that is correct.

And, if you draw more than your business' net income, you have another issue. . .one for the accountant!!

Laura

I have a single member LLC. My original investment in the LLC is in the LLC Memeber's Equity account. Then I used my personal money to invest in the expansion. I put this money into "Company Owes Me" Liability account, as I want to get this money back (like a loan). So every month that I have enough profits, I pay back myself through this account.

First, is this right? (QB help showed me to do it a few years ago.)
Second, After paying back all - Company Owes Me becomes zero - how should I pay myself?
Thirdly, if I need to make another investment from my personal money, should I use the same method?

Thanks.