QuickBooks Equity Accounts – Understanding Them

Posted by on Jul 27, 2011 in Other Accounts | 4 comments

What is Equity anyways? For you that may not understand it completely, equity is the difference between your assets and liabilities (A-L =E). Say you sold off all your assets and paid off all your liabilities, using the funds you received from the sale of your assets, equity would be the money you have left.

This would also mean that your total assets equal the sum of liabilities and equity (A= L+E).

So where is this Equity account found? Well it is found on your Balance Sheet and sits below Long Term Liability as show on your left.

How does QuickBooks use it? When you enter in your opening balances of your assets and liabilities, QuickBooks figures out the amount of equity and records it in an equity account called Opening Bal (Balance) Equity.

QuickBooks also sets up another type of equity account called Retained Earnings. This is the account that displays your company’s net income from previous years.

At the end of each fiscal year, QuickBooks closes the Profit and Loss along with the net income to the Retained Earnings account. This figure then reflects an ongoing picture on the fiscal health of your business.

For a proprietorship, since all the equity belongs to the sole owner, there would be no extra equity accounts to add.

Some examples of  a corporation’s additional equity accounts could be Capital Stock, Dividends, Investments (could be made up of stocks or funds),  or Capital surplus. If the owners are shareholders there could also be a section entitled Shareholders’ equity.

QuickBooks allows you to get as detailed as you like in the tracking of equity.

One final word, if your operation is a partnership you would set up an equity account for each partner.

This concludes the section on QuickBooks Other Accounts.

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4 Responses to “QuickBooks Equity Accounts – Understanding Them”

  1. Karen Griffith says:

    I want to know if the equity accounts show as a minus or red on the chart of account sheet? Not sure if you need to put an investment money made in the credit or debit side of the sheet.

    • Larry Johnson says:

      Hi Karen, the equity accounts will show up as they should in the Equity section in the Chart of Account sheet, mainly because they are usually a Credit item. That means, NOT in red or as a minus. Investment money from Shareholders (Ltd. co.) or Proprietor(single ownership – non incorporated) will reside in the Equity section as a Credit.
      The only reason an Equity would show up with a minus, would be because it has a Debit balance instead of a Credit. Too many reasons to elaborate why that might happen, what with all the different types of Equity accounts.
      Hope that answers your question.

  2. Where can I get a detailed set of instructions and examples that actually explain every type of equity account, how they are used, why they are used, which one is best in which situation and why, and precisely how to account for them using Quickbooks? I know nothing, and I need to know everything, and I need to know everything by the end of the day. For the moment, I am trying to figure out how to pay out dividend earnings to shareholders, but the term is as much as I know about the issue.

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