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How to record the equivalent of owner equity deposits and withdrawals

bob2021

BACKGROUND (on my transition from QuickBooks to Quicken):

I am transitioning from QuickBooks to Quicken Classic Business & Personal, Mac.

I have what is currently a very small sole proprietorship, and report on a cash basis.

I've decided to keep my business in a file separate from personal.

I looked into/tried exporting QuickBooks chart of accounts, etc., then importing into Quicken, but ran into obstacles, and since my business is so small, I decided to start from scratch in setting up my business in Quicken.

HOW TO ACHIEVE THE EQUIVALENT OF USING AN OWNER DEPOSIT/DRAW BUSINESS ACCOUNT IN QUICKEN?

In QuickBooks, I have an equity account I named: "Owner deposits/draws", and have used that account when I make a deposit from a personal account (checking or cash) to my business checking account, or take a personal draw from my business checking account. (I have two categories in my personal file: "owner deposit to business" (Expense), and: "owner draw from business" (Income).

I searched the Quicken forum and learned (in two closed posts) that there are no overt "equity" accounts;, and a recommendation was to keep the business activity in a separate file (which I am doing) and "using offsetting balance sheet Accounts in the two files to record transfers between your personal file and the business file."

Also: "…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." and: "The "Net Worth" figure shown in Q is actually the counterpart to "Owner's Equity"

==> How do I create an offsetting balance sheet account in my business file?

I've looked in Categories, but don't see a balance sheet account type of category. Would I instead be creating an *account* in the business file: "owner deposits and draws"?, and if so, of what type?

And is it the case that I will have only one balance sheet account in my business file, even though I am making personal deposits to it, and taking withdrawals from it?

thanks

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jacobs

A "balance sheet type of category" in Quick is a separate account. In this case, your owner's equity account would not mirror a real-world physical account, but would reflect what you've put in or taken out. (You could have two accounts for payments in and draw out, or one account for both.) You could create the account as an asset or a liability; it doesn't really matter which.

If you were keeping your business and personal finances in a single Quicken file, a draw from your business equity account could be entered as a transfer to your personal checking account, so you'd capture everything in a single transaction. Since you're keeping the business and personal files separate, you'll have to enter your contributions and draw transactions twice, once in the personal data file and again in the business data file. Assuming you aren't shuffling money back and forth very often, this is a minor inconvenience but no too much of a burden.

So let's say you're taking a $10,000 draw from the business, by transferring $10,000 from your business checking account to your personal checking account. In the business file, you'd enter the outflow in a transaction in your checking account as a transfer to your Owner's Equity (or whatever you call it) account. That gets the money out of your business checking account, and documents the draw from equity. Then, in your personal Quicken file, you'd enter a deposit transaction in your checking account. You'd either categorize this as personal income, or if you want to have a balance sheet-type account here that reflects all the transfers to and from the business, you'd make the deposit transaction a transfer to the asset or liability account.

bob2021

If I've understood what you wrote, in my business file, I could create a new offline account. The only choices that appear possibly feasible, are: "Liabilities > Other Liabilities (Debts other than loans)", and "Assets > Other Assets" (there is also: "Assets > Cash", but it is not technically a cash account). Do one of those choices make sense? thanks

jacobs

Yes, either Other Assets or Other Liabilities; they function identically. I guess liability is closer to a normal balance sheet, where liabilities plus equity equal assets.

(By the way, I do think it was mentioned that at some point the developers plan to add a true owner's equity feature to Mac Business and Personal, but I don't know if that will be next month or three years from now.)

bob2021

Thank you for clarifying, and for the heads-up about a possible owner's equity future!

In terms of transaction entries, I was tentatively entering an owner deposit directly to my business checking account (I made a direct deposit from a personal check) and using an 'owner's equity' category. Is the proper way to enter the same transaction using a liability account, to credit the liability account (to reflect my direct deposit), then transfer that same amount (as a credit) from the liability account to my business checking account?

jacobs

In your business data file, your deposit would be a single transaction in your business checking account: a transfer to the liability account. (Or vice versa; it doesn't matter, as a linked transfer will appear in both accounts.)

In your personal data file, you would also have a single transaction: a check paid to yourself or your business. Here, the way to categorize this transaction depends on how you prefer to track payments to the business:

It could be a transfer to an asset account, if you want to track money the business owes you back
It could be a category for business capital contribution/draw if you want to see these as personal income or expenses.

bob2021

I think I've made the transactions in the business file as per your instructions; does this look correct?

The first screenshot is the deposit to business checking; the second is the same transaction in the "owner equity" liability account; the third shows the relevant settings for the "owner equity" liability account.

The thing I had a hard time wrapping my head around was that the business checking deposit shows as a transfer to the liability account, however the business checking balance correctly reflects the ($100) deposit. thanks

jacobs

If you're at all familiar with basic accounting principles, every transaction has a debit to one account and a credit to another account. With asset accounts, a debit is an increase to the asset. With liability accounts, a credit is an increase to the liability. In this case, your deposit to the checking account (an asset) is the debit, offset by a credit to the equity account (which we're treating as a liability). So the checking account balance increases, and the liability (the amount your business "owes" you back) also increases. Quicken isn't a true "double entry" accounting program, but that's essentially what the transfer transaction accomplished: it increased the checking (asset) and increased the equity (liability). ✅

bob2021

I am familiar with the basic accounting principle you mentioned, and have entered transactions that way in QuickBooks (and Quicken) for about 3 decades. But I had trouble translating how I've done owner equity transactions in QuickBooks vs. the method we're now discussing in Quicken. In QuickBooks, when I made a deposit to business checking from a personal check, it would show up as a General Journal entry, with my owner equity account as the transfer:

In Quicken, it looks a bit different (at least to me). Likely because of what you wrote: "Quicken isn't a true "double entry" accounting program". And as discussed, there isn't currently a dedicated owner equity type of account in Quicken.

Thanks for confirming the way I entered the transaction in Quicken is correct.