Distributions In QuickBooks Online Explained

[@durairanganathan5059]

I feel like 'owe you', after learning so much from your videos for FREE. Thanks for amazing videos! From.....one of your student you never met :-)

[@nerdenterprises]

Thank you!

[@ASa-kv1lz]

This is exactly what I've been looking for, a very practical, step-by-step method for owner's disbursement! Thank you so much!

[@chavocanuck]

Thanks for the tip on not clearing distributions at Y/E. I have yet to find a youtube video where distributions are categorized as dividends, capital dividends, share repurchases... I'm mapping out a corp with multiple shareholders and 3 share classes, thinking QB may not be the place to manage shareholder details.

[@nerdenterprises]

Hi! dividends are really the same as distributions. We think of Dividends being made to shareholders in a publicly traded company. You can do this with QBO, but you will need a detailed Equity section if not another app to track the kind of details you need. To be honest, I would book the Dividends as a single Dividends account in QBO. The I would track these details in a database like Airtable. You can structure it with a nice audit trail so you can easily subtotal information in Airtable in a way that ties back nicely to what is in QBO.

[@Corn-ped]

how about a video how to categorize salary vs distributions for a single share holder S corp.

[@nerdenterprises]

I'm not sure what you're asking. Salaries are an expense, so they would go to Officer's Salaries. Distributions go to Equity such as Shareholder Distributions. Let me know if that answers your question, or feel free to clarify it further.

[@jessicathompson1941]

Is this the same even when the owner is a W2 employee drawing a salary? I.e. they get their regular monthly salary but every now and again they take a distribution.

[@lcadigitalmedia]

very useful video as well. I am curious though since the Shareholder Distribution adds up every year if we don't close them out. What's the best way to show report of Shareholder equity (capital, contributions, distributions) that will show only for the current year that doesn't include the previous year's equity. Also the balance sheet to submit to my CPA.

[@danaewhitteker9710]

Not sure if you will see this because this is an older video, but I'm struggling to understand why you would not close distributions into retained earnings. I understand that business owners need different info than CPAs, but if you own a business for 10 years and take out 10K/year in distributions, that eventually adds up to a big negative in the owner distribution line. I know the general rule is that assets should equal liabilities plus equity, but if the distribution line keeps going negative year after year, wouldn't they eventually be way out of balance? Closing it out to retained earnings makes sense to me as a bookkeeper. However, I'm completely self-taught, so If I am misunderstanding something I'd love a resource to help. Thanks!

[@nerdenterprises]

The equity accounts are cumulative, so whether you close it out or leave it, the negative number will keep growing as you take out distributions. Closing it to Retained Earnings will only make retained earnings grow more and more negative (unless your cumulative net income exceeds your distributions). The reason I prefer to keep it in distributions, is that this way the retained earnings number is purely the cumulative of all prior year net income / loss. So, if you run a P&L for all time grouped by year, you should be able to tie that out in total to retained earnings. Also this lets me see everything they've taken out of the business for all of time. If I want to see what it was just for this year, I can drill into the number from the balance sheet and the "Amount" column total is just for the current year. It won't get out of balance because your Total Equity will be the sum of distributions and retained earnings. Finally, what this also does for me is it gives me a nice bird's eye view of the Equity section as in: This is the total cumulative of earnings for all of time. And this is the total the owner(s) have taken out for all of time. Then if the distributions exceed the retained earnings by a lot, we can do some "reasonableness" testing like, is there debt on the books that explains how this difference was funded? Or were there contributions made that were later taken out as distributions (I like to see those in a separate account too). So in the bigger picture, keeping it all separated gives me good data about the company.

[@nerdenterprises]

Follow up comment, because it HAS been a few years and I forgot exactly what I taught here until I had a quick look. So if anything in the example in this video we have two shareholders so what we do is the opposite of closing out to retained earnings. We actually take what closes out to retained earnings from the P&L each year, and on the 1st of the following year, we zero out that amount and split it between the shareholders in proportion to their ownership. This makes the Equity section super clean.

[@danaewhitteker9710]

@@nerdenterprises Thank you so much for responding. I think what I have been missing is the "passthrough" of disbursing to the capital accounts first and then distributing. So, I should disburse from net income/retained earnings to the respective capital accounts first, then take distributions. Is that correct? There are two owners who happen to be married with combined finances, so it is easy to just lump it all together, but after watching this I see how it is so much cleaner to split it out between them. And easier to see compliance as well! I'm sure you will hear from me more as I take your free mini-course :)

[@nerdenterprises]

@@danaewhitteker9710 Well it sort of naturally happens in the other order. They take distributions out during the year, and then when the year closes you distribute the net income from R/E to their respective capital accounts in proportion to their ownership. It sounds like you've got the idea. I am here whenever you need help!

[@dennisokelly9293]

Great video, thank you. Curious if you have ever gone into the rationale of Loans vs Distributions for S-corps that you mentioned?

[@nerdenterprises]

Hey Dennis. I'm sure I've discussed it elsewhere, but the quick answer for s-corps is that booking it as a loan is "safer" but the intention has to be to pay it back. You might want to check out my video and e-book on S-Corps here: www.nerdenterprises.com/offers/6DXVvuyg/checkout

[@itmisc2007]

Hi, Thank you for a very detailed explanation. I have a question. Lets say I setup a single person owner S-Corp, and I am the only owner, shareholder and employee. So here is the question. How large of a distribution of a $100k profit could I get if I own only 2% of the company? Could I make a more than 2% of the $100k profit distribution to myself?

[@DoctorJ-NY]

Thanks for the explanation. In an S-Corp what would the correct tax line mappings be for those equity accounts in QB?

[@nerdenterprises]

Hi! Yes. If it's an Equity account in QBO, it's an Equity account in the tax line mapping.

[@sameeruddin3513]

Does profit allocation or earn reflect on the partnership account or partner shareholder?

[@martingonzalez7017]

Hey, thanks a lot for the video. It is the best-explained video that I Have found on this topic. I have a quick question if we do NOT zero out the owner's distribution account, how do we see how much owners have drawn for a certain year? Thanks again!

[@nerdenterprises]

If you are using QuickBooks then from the Distributions account, you can double click to see the transaction detail. Then adjust your date range to the year you want to look at.

[@happynmontana]

I've created new equity disbursement accounts for each year. "Jane Doe Partner Disbursements - 2018" and another for 2019... both a sub-account of Jane Doe's equity account. I still hate that it shows as a negative.

[@eileene15]

Does a married couple that are 50/50 owners in an scorp have to take distributions equally if they share all bank accounts?

[@nerdenterprises]

They each get a separate K-1, so I would think they do need to take them equally, yes.

[@screamhousegames3079]

Great info. Can you expand on the Loan to Shareholder vs Shareholder distribution for 1120s? Does the loan to shareholder have to be repaid after a couple of years despite it being used instead of a distribution?

[@nerdenterprises]

Hi sorry I missed this earlier. There is no hard and fast rule on this, but the idea of classifying it as a loan is that the intention is for it to be repaid.

[@felixbaquedanoe.7789]

This is incredibly useful! I know am a little too late to post a question, BUT if you can answer it, I would appreciate it. I have a partnership LLC. Upon checking my balance sheet, I see that there’s a beginning balance equivalent to the money we each took every month last year. Thus increasing each of our draws for this year! Is that supposed to happen?

[@nerdenterprises]

So sorry for the very late reply, but somehow I missed this until now! I'd have to see this to be sure, but it sounds like that is just your balance forward in the Equity account. Balance sheet accounts are cumulative, so whatever balance is in there going into the year, will remain, and then it will be increased or decreased based on current year activity.

[@jolenewang9748]

Hi Nerd, this is a very useful video, could you let me know how to distribute net income to owner's equity in Quickbooks online?

[@nerdenterprises]

Hi. Normally we do this with a journal entry. Debit Retained Earnings and Credit Owner's Equity. Do this on 12/31/xx and the next day (1/1) Net income will close out to retained earnings so retained earnings will zero out.

[@yvettemedina515]

Hi my accountant closed out the capital accounts to retained earnings, how do I go about reversing it to reflect your work in this video?

[@DealingWithDigits]

Is it possible to use QuickBooks Online Core Payroll to pay Shareholders distributions using a paycheck and then pay the 941 taxes?

[@nerdenterprises]

Hi! The very definition of a Distribution is that it's not payroll. If you pay them with a paycheck then it's Officer's Salaries.

[@bobjones1072]

Thank you for the great videos! I had a quick question about my s-corp. In October 2018 I contributed 7,000 to fund the business. At the end of the year, the business posted a loss of $5000 and I deducted the loss on my taxes. My understanding is I should reflect this tax deduction on my shareholder capital somewhere but I'm confused as to which account to post it to. Do I make it a Shareholder Distribution or reduce it from my shareholder contribution account? Thanks!

[@nerdenterprises]

So sorry I missed this. If you are using QuickBooks Online, the loss will flow over to the "Net Income" line in the Equity section of your balance sheet as of 12/31 (assuming a calendar year). Then on 1/1 QuickBooks will automatically move this amount into retained earnings. So there is nothing you have to post, unless you want to distribute the net income / loss to some other equity account. This is done when there are two or more owners in the business.

[@racingsolution]

@@nerdenterprises Thanks so much.. I see how it all moved over to retained earnings. Just one more question if you don't mind! I have a personal owned vehicle and had $1173 in mileage deductions for 2019. It was listed on my 1120S form as a deduction. In order to get my Quickbooks to balance, I had to show that $1173 as an expense to lower my net income to match the tax filing. Is that $1173 considered a shareholder distribution? I'm trying to figure out what kind of journal entries I need to make to get that money out of the books. Thank you!