[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]
Re: Acctounting Question: Initial Capital Contribution
- Subject: Re: Acctounting Question: Initial Capital Contribution
- From: Chris Travers <..hidden..>
- Date: Thu, 25 Feb 2010 12:03:45 -0800
On Thu, Feb 25, 2010 at 11:43 AM, Hugh Esco
> In the Operating Agreement for a newly formed company it speaks of the
> initial capital contribution of the founding partners. That investment
> was made in a combination of cash and sweat equity. The Agreement
> later includes a provision providing for a 'Set Price' meant to
> monetize that initial capital investment.
> My question relates to how this set price ought to be "memorialized and
> made a part of the LLC records" as required. I'm guessing that I want
> to create a GL entry. I understand how to balance the 'Common Shares'
> account with the 'Checking Account' as a GL entry. But I'm wondering
> how it is I make a balanced GL entry giving credit in Common Shares for
> the unpaid sweat equity invested in the start-up.
Ok. I am not a CPA, but this seems like a fairly straight-forward
question to me.
In a small firm, I would skip the common shares bit for the main
principles and create separate equity accounts for them. In a large
firm, you would have to hit a single account (common shares). Either
way you are going to have three accounts involved:
1) Asset/Checking account (debit cash contribution)
2) Asset/Contributed labor account (debited agreed commitment)
3) Equity/capital account (credited total contribution)
When the contributed labor is used as agreed, you can credit it
against a different equity account (called a drawing account). The
drawing account would be manually closed (and zeroed) at year-end but
the capital account (tracking contributed equity) would not.
Hope this helps.