Managing Equity in a business covers many areas from Capital Raising, Drawings, to Shareholder dividends, distributions and more.
Owners Drawings
Sometimes business owners withdraw funds from their company. These drawings may be equity drawings or a temporary drawing which may be booked against an existing directors loan. It might also be inadvertent use of the company credit card or account to pay for something personal. To book an equity drawing:
- Select Add > Journal.
- Set the contact to be the person drawing the funds. Add an appropriate comment. e.g. personal expense, drawings etc.
- Debit Equity: Owners Drawings.
- Credit Asset: Bank Account XYZ or e.g. Liability: Credit Card ABC.
Issue Shares in a Company
Your organisation may be a type that can issue stock, equity, or even units in a trust. To represent this you will need entries which use the Equity type of account. In the following example, we are capturing an owner investing $1 of equity in the company for stock/shares giving the company:
- Set up an Account called Equity: Issued Capital or similar.
- Enter a sales transaction for $1 using the contact as the shareholder – The account you select will be Equity: Issued Capital.
- Apply a payment (if you receive one) or email the unpaid sale with any supporting documents for the issue of the share.
- When payment is received, apply it to the transaction using the pay option.
- Repeat this process for any other shares issued.
You can now repeat this approach as you issue more capital (shares and the like) OR opposite entries may be required as you re-purchase equity from shareholders through buybacks or other methods. A similar logic of using a journal entry to the correct ledger accounts could be used for other entries like a dividend issue to shareholder.
Given that there are several forms of equity and dividends can be handled in different ways, it is important to consult your advisor.