We’ve discussed the importance of tracking your finances carefully in other episodes. One situation where it is very important to track your finances accurately is if you have outside investors in your company. In this episode, Bernard Roesch explains how to log investor contributions and equity within QuickBooks.
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Loans Versus Equity Investments
The first step to tracking investor contributions accurately is to determine if the contribution is a loan or an equity investment. If the contribution is a loan, then there’s a repayment point plus interest over time. We’ve covered this in other episodes. So for the sake of this episode, we will focus on equity. If an investor is providing you funding and receiving equity, that funding is not expected to be repaid with interest, but the investor would receive a share of the profits.
How to Record Investor Contributions in QuickBooks
When you receive the payment, record that payment to an equity account in the balance sheet to document the ownership of the business. Similar to the way that you would track fixed assets in a balance sheet, you should also have sub accounts for each investor. This allows you to track each investor’s contribution separately. If you, yourself, contribute money to your business, you should also record it in a similar way. However, as an owner, it would be best to talk to a CPA to ensure it’s logged in a way that meets financial compliance as well as tax planning best practices.
It’s important that you log investor contributions accurately, especially if you are doing this for the first time. Bernard can help you by configuring QuickBooks to track this information appropriately so you can use it today and in the future.