How to Record Owner's Capital in QuickBooks
QuickBooks is the accounting software of choice for millions of small business owners, the ease of its use is often deceiving to some as the entry of transactions is a rather easy process that can end up being complicated by details. An example of this is in the entry of the Owner's Capital into QuickBooks. Owner's Capital refers to the amount of cash used as an initial investment in the company being started. It can be as simple as a cash investment or cash used to purchase assets or inventory. QuickBooks keeps constant track of the use of capital funds in a business.
Things You'll Need
- Bank statements
- Amounts of initial investments
Complete the Easy Step Interview. Upon installation, the QuickBooks software will take you through what is called the "Easy Step Interview" where you will be prompted to enter basic information about your company including contact information, legal organization (sole proprietorship, corporation) and tax information (tax ID number). The QuickBooks program will automatically create the "Owner's Capital" account for you. It may be called "Owner's Equity."
Gather all documents and details regarding the initial investment in the business. These can include deposit slips for the deposits into the business account, cancelled checks from personal funds used to start the business or loan documentation for the loan taken to start the business. How you enter the "Owner's Capital" depends on whether you got the funds from a personal account without debt or through the use of a business capital loan.
Create General Journal Entry. Click on the "Company" button in the top menu bar and then choose the "Make General Journal Entries" tab. The window that pops up will resemble a spreadsheet with five columns across and several rows down. The Account, Debit, Credit, Customer and Class are the five columns across, since this is a recording of initial investment the customer and class columns are not needed.
Click on the "Owner's Equity" account in the first row of the first column. The first column is labeled "Account," click on the little side arrow in the first row of that first column. A window will pop up with all the accounts listed in your company chart of accounts. In the second row of the first column, enter the account into which you deposited these funds in the Debit column (Checking, Savings, etc.). The debit column is the second of the five columns.
Enter corresponding "Credit" in the third (Credit) column on the second row. The corresponding credit will be the same amount as the initial investment. For example a personal investment of $10,000 that is deposited into the business checking account would be entered as "Owner's Capital" Credit $10,000 and "Business Checking" Debit $10,000.
Create a long term liability account. If you are beginning the business with a loan. you will need to create a long term liability account. Open the chart of accounts by clicking on the "List" button at the top menu bar and choosing the "Chart of Accounts" Hold down the "CTRL" and "N" keys to create the new account.
Select the "Type" of new account. Under the "Type" bar choose "Long Term Liability." Click on the button labeled "Enter Opening Balance" and enter in both the date and amount of the loan. Then make a "General Journal Entry" for that same amount with a credit in the "Owner's Capital" account and a debit in the account into which you put the funds.
Divide investment portions according to the amounts of initial investments. If you have friends and relatives who are helping by investing in the business, use the total investment of all owners to calculate the percentage of each investment. For example, if the total initial investment is $25,000 and you have contributed $20,000 and a relative has invested $5,000 the ownership is 80 percent yours and 20 percent theirs. Use these percentages to create the two equity accounts.
Create two equity accounts labeled with your names or "Owner 1 Capital" and "Owner 2 Capital." Open the Chart of Accounts and hold "CTRL" and "N" to create new accounts and under "Type" choose "Equity." Open the "General Journal Entries" window and on the first row under Owner 1 Capital account enter the debit of $20,000, on the second row under the Owner 2 Capital enter the debit of $5,000. On the third row, enter a credit of $25,000 to the account the investments were deposited in.
Tips & Warnings
- If the invested capital is used for the purchase of equipment, follow this procedure and record the bank transaction that paid for the equipment or inventory as another transaction.
- If the business is formed as a sole proprietorship, there will be an Equity account called "Owner's Equity." If it is a partnership, this same account will be called "Partner Equity." If it is either a C-corp or S-corp it will called a shareholder's equity. Make sure the term matches the organization of the business.