DESKTOP EDITION CLOUD EDITION SERVER EDITION THEMES GUIDES FORUM
Guides

Set up and use capital accounts

Capital accounts track contributions from, distributions of earnings to, and drawings of owners or others with financial interests in a business entity. They can be adapted to suit any type of entity, including sole proprietors, partnerships, companies, trusts, and funds.

Setting up capital accounts

Enable the Capital Accounts tab, following instructions in another Guide. The tab will appear in the left navigation pane. The number in the window indicates the number of capital accounts established:

In the Capital Accounts tab, click New Capital Account to define the first member or owner of a capital account:

If making a transition to Manager from a previous accounting system, the member may already have a capital balance to transfer. In that case, check the box indicating a starting balance on the Start Date. For positive capital account balances, select Paid in advance and enter the closing balance from the previous accounting system. For negative balances, select Amount to pay, indicating the member has withdrawn more than was actually distributed:

Click Create to save.

Sole proprietorships require only a single capital account. Partnerships require a capital account for each partner. Trusts require one for each beneficiary. Funds require a capital account for each member. Repeat the process described until all capital accounts have been established:

By default, all capital accounts are combined as Capital accounts in the Equity section of the Balance Sheet:

Sometimes, it is necessary to rename the account. For example, if the business operates as a sole proprietorship, the account can be renamed as Owner’s equity. Click Edit under Chart of Accounts in the Settings tab:

Note
In some situations, sole proprietors need not add the complexity of capital accounts to their business records. See this Guide for a discussion of a simpler approach to equity accounting.

Sole proprietors and partnerships are unincorporated, meaning they have no shareholders. Their capital accounts can be set up as described in this Guide. But companies or corporations (terminology varies in different jurisdictions), trusts, and funds are separate legal entities. Depending on the legal structure of a business, it may be nessessary to change the classification of Capital accounts from Equity to Assets if they are debit balances or Liabilities if they are credit balances. When in doubt, consult with a local accountant to be sure.

Capital subaccounts

Each capital account you create automatically has the following subaccounts:

Subaccounts are useful for segregating movements to and from capital accounts. Default subaccounts are sufficient for most businesses, but you can add, remove or rename subaccounts under the Settings tab by selecting Capital subaccounts:

Drawings

Drawings tracks money a partner, beneficiary, or member withdraws from the business. When you transfer funds from a cash account to a member, or if the business pays a private expense on behalf of a member, the transaction should be posted to the Drawings subaccount:

Funds contributed

Funds contributed tracks money a member has contributed to the business. When a member deposits personal funds into a business cash account, the transaction should be posted to the Funds contributed subaccount.

Share of profit

Share of profit is used to allocate net profit from Retained earnings to Capital accounts. Only certain types of legal entities are required to distribute profit to owners. Such distributions are often done by an accountant at the end of a financial period using journal entries:

They prevent earnings from accumulating endlessly in Retained earnings. Such distributions show that funds are no longer available for general business operations, but have been earmarked for the capital account owner.

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