When you start a business it is almost certain you will make contributions into the business. Of course I recommend using QuickBooks Online for your accounting, so it follows that you will want to know everything about recording contributions in QuickBooks Online.
If you missed it, be sure and check out the previous post, “Equity In QuickBooks Online Explained.”
- Owner Contributions.
- Shareholder Contributions.
- Member Contributions.
- Partner Contributions.
The above are all different ways of describing the same thing for different business types.
Owner Contributions – Sole Proprietor
Shareholder Contributions – Corporation
Member Contributions – LLC
Partner Contributions – Partnership
There are a number of things you may contribute into your business.
- Other Assets
Any time you contribute as asset into the business, you increase that business’ value.
You can see this most clearly when you record contributions in QuickBooks Online.
When you record cash contributions in QuickBooks Online it is simply a deposit. The money is going into the bank account, and the account you book it to in the detail area will be the contributions account.
This is the easiest way to see the impact a contribution has on the business. Your bank account and the contributions in QuickBooks Online are now increased. You’ve increased the value of the business by contributing cash into the business.
Assets and Equity are both increased. This is all happening on the balance sheet.
Sometimes your business needs equipment and you own it personally. You can contribute that equipment into the business.
Here again you are increasing assets, and since the business isn’t paying for them, you are increasing contributions in QuickBooks Online
When you contribute cash there is a bank deposit to record. Here nothing impacts the bank account, so you will record this with a journal entry.
You’ll need to value the asset. Sometimes this is clear, other times you may need to get an appraisal.
Once you have the value, the journal entry is simple:
Debit the asset
I see many cases where the contribution is in the form of Inventory. Oftentimes and owner will transfer inventory from an old business into a new business. Or (S)he was operating as sole proprietor and now they’ve set up a corporation. Previously, the business owner personally owned this inventory. Now you have to record the contribution to the corp.
This one is a little tricker to record.
Like a property there is no cash contribution. So we can’t write a check.
We also can’t record a journal entry, because we need to track the items, quantities and their values.
The only way to do this is with a zero dollar check or bill. It doesn’t matter which. Watch the video to see how this works.
Any other asset contributions in QuickBooks Online are going to work the same as property. You’ll need to have a value. The general rule on valuing assets is the lower of cost or market. Then you record a journal entry on the date the asset contribution was made.
What about contributed services?
The short answer is that there will likely be no tax benefit to doing this. We had a lengthy discussion on this some years ago on my YouTube channel. Sorry I looked, I can’t find the video with this discussion. Ask your local EA or CPA why.
Watch the video to see what this all looks like and post your comments and questions below.