I received an email today with a common question about shareholder distributions:
Currently on our books, personal distributions are listed as "owners equity". This doesn't seem correct to me. Most distributions are as simple as a company CC being used for personal purposes. Also - these Distributions are not showing up on the P/L report - (probably because of how they are being catagorized). Could you please help me know if there should be a change in how distributions appear on our books?
Here is my response:
They are showing up correctly on your books. Here are some basics:
1) A distribution to an owner is not an expense of the company, so it should not show up on the P&L.
2) Because distributions aren't on the P&L, they do not reduce the net profit of the company.
3) A distribution is a benefit to the owner, and therefore is an equity item.
4) When an owner invests in a company or the company earns a profit, the owner's equity increases.
5) When an owner takes money out of a company or the company has a loss, the owner's equity decreases.
6) Personal expenses paid by the company are considered a distribution.
As always, the best thing to do is to keep personal expenses off the business books.
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