Owner Capital, Contributions, and Draws
Equity accounts keep track of the owner’s interest in the business. When an owner puts money in the business it is a contribution. When she takes money out it is a draw. These entries are sometimes recorded as income and expenses incorrectly.
Quickbooks will create different types of Equity Accounts for a Sole Proprietor
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Opening Balance Equity
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Owner Equity
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Owner Draw
Opening Balance Equity is a holding account used to offset entries when a new account is being set up. It should be cleared (Net to $0 Balance) after the initial file set-up. If this is the first setup of your file then you do not want to use this account. Additionally, if you are not working with an accountant you want to try and stay away from this account.
What if I’m starting with a balance in my checking account?
Yes, this does sound like the place to put your opening balance but it doesn’t have to be. Enter your beginning balance as an Owner Contribution and you will not have struggle with the Opening Balance Equity account.
Owner Equity is a retained earnings account that your net income is rolled into at the end of the year. This account is also misleading to a novice Quickbooks user or small business owner. You don’t post to this account, instead you change the name of this one to Retained Earnings and create an Owner Equity Account to record the money you put into the business.
Owner Draw records withdrawals on the account from the owner.
Next: 3 Steps to set up Equity Accounts in Quickbooks
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