Quickbooks - Recording S Corp Distribution

[Fijipup]

I need to record a boat purchase/loan/payments as a "distribution" to the owner of the company. I currently have it recorded as a fixed asset with a loan...as payments are made, the loan is obviously reduced. I am not sure how to continue with the loan and loan payments if this is considered a "distribution"....I cannot make "payments" out of the equity account? Thanks

[Unregistered]

Dividend paid

Every payment should be a dividend paid to the shareholder, and get closed to the equity at year end.

There should not be a N/P acct. if the boat loan is in the shareholder name and the boat has not been contributed to the Corp.

JoshInNC

[Fijipup]

Quickbooks would look like?

Ok..so I need to remove the fixed asset from the books completely. Then I need to record the boat payments as a dividend paid to the owner? And not even record the loan in the company QB file? I'm not sure how I would "make the payments" in QB...don't think I can "pay" an expense out of a dividend account? Please advise. thank you

[OldJack]

Ok..so I need to remove the fixed asset from the books completely. Then I need to record the boat payments as a dividend paid to the owner? And not even record the loan in the company QB file? I'm not sure how I would "make the payments" in QB...don't think I can "pay" an expense out of a dividend account? Please advise. thank you

The checks paid to the loan company would be charged to a "Property Distribution Account" (a sub-account of Retain Earnings account) which is like a draw account in partnership or proprietorship accounting. The property distributions at year-end are reported on 1120S, Sch-k, line 16d. As was said before the asset and liability should be reversed from the S-corp books.

[Fijipup]

Very Helpful

Thank you. This information is very helpful. I could understand the "concept", just couldn't figure out how Qbooks would treat the situation.

[Unregistered]

Just remember -


The only equity account that QuickBooks closes automatically to retained earnings at year end is the "Net Income" account. You have to write a journal entry to close any distribution or draw account.

[Gretel]

The checks paid to the loan company would be charged to a "Property Distribution Account" (a sub-account of Retain Earnings account) which is like a draw account in partnership or proprietorship accounting. The property distributions at year-end are reported on 1120S, Sch-k, line 16d. As was said before the asset and liability should be reversed from the S-corp books.

Old Jack, why would this be a property distribution. If Corp. just pays loan, isn't this a draw called dividend?

[OldJack]

Old Jack, why would this be a property distribution. If Corp. just pays loan, isn't this a draw called dividend?

Because there should not be a loan or an asset account on the S-corp books as the boat is owned by the individual shareholder. Therefore, any payment direct to the loan company is for the shareholders convenience and in reality a property distribution to the shareholder.

A "property" distribution (cash distribution, asset distribution @ FMV, distribution from S-corp profit, AAA distribution, etc) is reported on 1120S, pg3, line 16d, not taxable on the 1040 unless excess of stock basis.

The term "dividend" is usually only used with regards to a payment from earnings & profits account earned when a C-corp and reported on 1120S, pg3, line 17c, flowing to 1040 Sch-B as taxable.

The term "draw" is an old established accounting & tax term only used to describe withdrawal payments from a partnership or proprietorship entity.

[Unregistered]

semantics, Jack, semantics

While I agree that we should use proper terminology when speaking with other professionals, it is much easier when preparing a financial statement to use a common term that the business owner will understand, rather than spending 30 minutes explaining the nuances of dividends, property distributions and draws.

JoshInNC

[outwest]

Except for the minor distinction that..

dividends are taxable, draws and distributions are generally not.

Doug

[OldJack]

While I agree that we should use proper terminology when speaking with other professionals, it is much easier when preparing a financial statement to use a common term that the business owner will understand, rather than spending 30 minutes explaining the nuances of dividends, property distributions and draws.

JoshInNC

Investors, banks, and others rely upon the terms on our financial reports and are happy to sue your a** when they lose their money. If we are going to not use proper terms it should be with professionals that understand the terms in context of the statement. Professionals generally know that the term dividend for a S-corp is probably a non-taxable property distribution, an investor would possibly think otherwise.

[Gretel]

Thanks, Old Jack. I agree, proper terminology should be used and since I had to learn everything from scratch, mostly on my own, I really appreciate your explanations.

Gabriele