One of the most confusing things for new business owners can be knowing how to get in and out of your business. Most startups lose money in the year of their conception. As a result, there are bills to pay, but there is no money in the bank account. Often times, the new business owner does not know how to bring money into the business to pay the necessary bills or how to record the money that comes in.
There is a simple answer for this. All the business owner has to do is deposit money from a personal account into the business account. This is called a capital contribution. It is not an income for the company. It is a capital account that appears on the balance sheet.
Once the business begins to make a profit and capital contributions are no longer necessary, there comes an exciting time when business owners can get money out of the business. For some new business owners, this can also be confusing. We had a client who had $ 40,000 in her business account at the end of the year because she didn’t know how to get it out.
Taking money out of your business is as easy as making a capital contribution. Just write a check and report it as a landlord sweepstakes. An owner’s draft is also a capital account and will appear on the balance sheet. It is important to record these withdrawals as an owner draw because an owner draw is not an expense to the business.
So moving money in and out of your business is as easy as writing a check or making a deposit. What can be a bit difficult is knowing how to record transactions in your accounting software.