Business capital accounts, which sometimes go by the name equity accounts, are an important thing for you to understand as a business owner. The term capital refers to all assets pertaining to your business. The most common types of business assets include cash, equipment, buildings, land, and accounts receivable. This term can also refer to the amount of wealth the owner has accumulated in the business, which is also known as the owner’s investment.
Business Capital Accounts Associated with Different Business Structures
The structure of a business owner account depends on the type and classification of the business. Owners and members of a limited liability corporation (LLC), for example, have capital business accounts. Someone working for themselves as a sole proprietor has this type of account as well. Shareholders of organizations hold shares, which are different than any other type of financial stake in a company. Members of S corporations are also shareholders.
Understanding Deposits and Withdrawals from an Owner’s Equity Account
With an LLC, each owner has their own capital account that appears on the company’s balance sheet. The balance of the account grows when owners make contributions as they join an LLC or as part of the bylaws that determine their schedule of contribution. At the end of each fiscal year, owners either add or subtract from the account to determine the company’s net profit or loss as well as each owner’s share of it. Subtractions from the account also occur when an owner withdraws funds for personal use.
Definition of Contributions
A capital contribution typically involves an owner, shareholder, or partner putting money or property into a specific financial account. During the course of operating a business, you may also contribute items such as computers to the business. You must have a current and accurate value at the time of contribution so other partners know how much to credit you for it.
The topic of business capital accounts can get complex. Fortunately, Grecco Capital is here to make you make sense of it.