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Should I be recording "Owner's Equity" as an asset or liability (in a dedicated quicken file)?

Patrick Larkin

Background: opening a new business and want to track it completely separate from personal finances in both Quicken and at Tax time. We might switch to QuickBooks later, but I know quicken and I need to start tracking quickly. And I know Quicken doesnt really have an owner's equity construct. That said:

I've read from the thread below some great ideas, but there seems some debate between whether to create the "Biz Owners Equity" account as an asset or liability. It's been 40 years since I took accounting in university, but my mind thinks of it as a liability (something the business "owes" the owner). But I guess that causes the number to be negative (if I'm reading right). Again, that kind of makes sense, but just looks funny.

Is there a reason or benefit to (or caution against) using an Asset account instead?

https://community.quicken.com/discussion/comment/20157591#Comment_20157591

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Accepted answers

NotACPA

There is no need to create an "Owner's Equity" account of any sort in Q … and if you do, you'll have to maintain the value manually. Because Q, unlike QB, won't automatically maintain that value.

And, since you intend to track the business in a separate file, Q WILL automatically track "Net Worth", which if there's only business activity in the file is also your Equity, even if negative.

Besides my personal file, I'm also the Treasurer for a club and I track the club's finances in Q. The "Net Worth" figure shown in Q is actually the counterpart to "Owner's Equity", but since the club is a non-profit none of that would be distributed to the membership, should the club ever dissolve, since they aren't "owners".

All comments

NotACPA

There is no need to create an "Owner's Equity" account of any sort in Q … and if you do, you'll have to maintain the value manually. Because Q, unlike QB, won't automatically maintain that value.

And, since you intend to track the business in a separate file, Q WILL automatically track "Net Worth", which if there's only business activity in the file is also your Equity, even if negative.

Patrick Larkin

https://community.quicken.com/discussion/comment/20545232#Comment_20545232

I think this key phrase helps get my head around it:

"since you intend to track the business in a separate file, Q WILL automatically track "Net Worth", which if there's only business activity in the file is also your Equity, even if negative."

Sounds simpler that way anyway. My "data hoarding" tendencies were showing. ;)

NotACPA

@Patrick Larkin "data hoarding" might also be described as "over-thinking the situation". I might have a tendency towards that also.

And my 1st/late wife sometimes described me as being a bit "anal retentive" when it came to bookkeeping. 😁

NotACPA

@Patrick Larkin I just had an additional thought about this.

Since you own the business, it's properly part of YOUR net worth also … but since the business will be in a different file, it won't be reflected in your personal Q data file.

THUS, you might want to consider creating an Asset-type "Owner's Equity" (or "business value" or whatever) account in your personal file and updating it periodically (monthly, quarterly, entirely your discretion) with the Net Worth from the "business" file … so that you'll have a bit more completeness as to your own Net Worth.

You'll need to do that update manually, but for 1 change-in-value transaction that shouldn't be difficult.

Patrick Larkin

https://community.quicken.com/discussion/comment/20545255#Comment_20545255

Thanks for this tip! I've already made a few "Capital Injections" from my personal checking, and had coded them to a new Category called "Capital Injection" (and tagged with the business name). I may convert them to an asset account and perform the balance adjustment per your recommendation, probably monthly at first, then quarterly after I get comfortable with that.

NotACPA

I take it that "Capital Injection" is an expense category … but since they add-to (or create) the initial value of the business (which you own) they really don't reduce your net worth … which is what an expense does. Those txn just move money from the personal side of your net worth to the business side.

I'd create that asset account and change the expense transactions to transfers to the asset account.

And, assuming that the business has a checking account, I'd record those CapInj in the business file banking account as "Opening Balance" which will cause them to appear in the business net worth without getting too picky as to where they came from … since there's no "Owner's Equity" in Q.

When/If you convert to QB, these will need to be changed to OE … but it works for now.

BTW, one add'l thing I wanted to make sure you knew. QB can read/import a Q data file … but Q can NOT read/import a QB file. So when you start getting serious about the switch, you might want to get QB early and play around with (get comfortable with) it before you commit.