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Old 03-08-2012, 04:11 PM
stcsmach1 stcsmach1 is offline
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Understanding shareholder loans and distributions

First off I would like to say hello and my apologies for ignorance of this subject. I have tried searching Google and looking on here but cannot come up with the answer.

I have posted this question on Intuits site and have not had a response. I know some do not like others posting the same question on multiple sites but I don't know what else to do.

I basically need to know the proper way to:

1. Deposit money into the corporate account from my personal checking.
2. Withdraw money from the corporate account to myself (distributions, draws)
3. How to start each new year correctly. Before I had a shareholder loan account and an owners draw account that was growing each year.

I am the only one involved with the company. It is an S-Corp.

I understand payroll and cutting myself a check which I do but there are occasions where shareholder loans and distributions need to happen; for my situation anyway.

This is an S Corporation.

Example: If I need to take $100 out of the company account that should be recorded as:

Account Type: Equity, Account Name: Shareholder Distribution, Tax-Line Mapping: Schedule K-Other Items (prop, distribs, cash)

Example: If I put $100 into the company from my personal account that is recorded as:

Account Type: Other Current Liability, Account Name: Shareholder Loans, Tax-Line Mapping: B/S-Liabs/Eq Loans from shareholders.

Example: If I need to take another $100 out that would be recorded as

Account Type: Other Current Liability, Account Name: Shareholder Loans, Tax-Line Mapping: B/S-Liabs/Eq Loans from shareholders.


Not sure how to phrase what I want to ask. Shareholder distribution is where I get confused. Does this equity account only grow over the year(s)? For example when I make the shareholder loan that is not supposed to effect the equity account?

What if I have a balance of $100 in the shareholder loan account. Later I need to remove $150 from the company. Will I need to make two seperate transactions, $100 removed from the liability account, and another $50 to the equity account?

If the equity account has a balance of $100 and I make a shareholder loan that equity account will not change correct? Only the Other Current Liability account.

If this is correct what happens with the accounts at the end of the year if the shareholder Liability account has $100 and the equity account has $100?

Now I also read something about an Accumulated Adjustments Account. Is this something that applies to me as an S Corp? From what I read online elsewhere it sounded as if this should be used for personally putting money in and taking out.

I appreciate you taking your time to read this and I hope it makes some sense.

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Old 03-09-2012, 03:27 AM
Joe Williams Joe Williams is offline
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Join Date: Jan 2006
Location: Oklahoma
Posts: 9,380
The Shareholder Loan account if used to track money you loaned the company and the amount the company paid back to you.
The money used to start the company should be in Shareholder Equity and the normal distribution should be in Shareholder Distribution.
You can enter a journal entry at the first that zeros the Retained Earnings (last years net profit) into the Shareholder Distribution.
Please get a CPA to check the books and verify the tax return. They can also answer accounting questions. I know that it cost but it is a VERY good investment.
Joe Williams
Piedmont, Ok
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Old 03-09-2012, 06:56 AM
JustinAtBay JustinAtBay is offline
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Location: Naples, FL
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First: Shareholder distributions are, essentially, the distribution of company profits to the shareholders (like dividends). Anytime you take money out as a distribution you are, effectively, taking current or future profits out of the company. That's why it's booked to an equity account. You are reducing your equity position in the company.

Second: Shareholder Loans are just that - loans you make to the company and that you expect to be paid back. Hence the reason they are booked as company liabilities.

So, if you need to take $100 out of the company against profits, write yourself a check and post it to shareholder distributions. However, if the company owes you $500 and you need to take $100 out of the company, write yourself a check for $100 and post it to the Shareholder Loans account. The company now owes you $400.

Shareholder loans and distributions do, indeed, accumulate year after year. These are items that affect the overall accounting of the company over time. At the end of the year, your tax accountant (and you should definitely have a tax accountant) will make any appropriate re-allocations to make sure your taxes are correct.

Hope this helps.
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Old 03-09-2012, 10:33 AM
Deidre56 Deidre56 is offline
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At the beginning of each year, your shareholder distributions are zeroed out into Retained Earnings. You start each year with zero distributions again. They do not sit and accumulate year after year. If it were me, I would code all personal money in and out to your distributions account. if at the end of the year you put in more than you took out, the balance is moved to Additional Paid in Capital and increases your basis in the company. But please seek an accoutant in your area to help you.

Enrolled Agent
Quickbooks Proadvisor
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Old 03-10-2012, 09:02 AM
stcsmach1 stcsmach1 is offline
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Join Date: Mar 2012
Posts: 2
Thanks a lot everyone! I understand a lot more now. I do have a cpa that is going to go over things with me after tax season. I just want to get things cleaned up a bit before then. He isn't going to charge which is why I have to wait and i want to try and get as much done as possible ahead of time. I will be paying him to do my taxes from now on though. This stuff is definitely for the professionals.

A couple of other questions if you don't mind. I know each situation is always different for everyone so there's not always a one-size-fits-all answer ...

Would you all recommend starting a new file or trying to cleanup the old one?

My old file was using an expense account named draws for recording the shareholder distributions. I would rename this to distributions and change the account type to equity correct?

Would I create journal entries for the first of each year until it is "cleaned up"? So if distributions were $1000 at the end of each year I would create a journal entry dated 01/01/20xx and move $1000 to the retained earnings?

If I put in more money (shareholder loans) that goes into Additional Paid in Capital at the end of year. If I took out more money (shareholder distributions) at the end of year that goes into Retained Earnings at the end of year. Are these correct statements?

Once again thanks for your time. I really do appreciate it! I will do the best I can and then just wait for my CPA. I am making plenty of backups with notes so if I mess up worse I can always go back.
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