I think your problem is misunderstanding "equity".
You, as owner of these businesses have a total equity. Each of these
businesses has an equity. You are imagining that because was on one set
of books (your equity included the businesses) when you split YOUR
equity is reducing. You are forgetting the fundamental equation, Assets
= Liabilities + Equity and that you are allowed to add to one side of
the "=" if you add the same to the other.
When you split off a business, ITS assets, liabilities, and equity are
going to another set of books (you see that) BUT at the same time its
equity is appearing on YOUR books as an asset (your investment in this
business, in the amount of its equity) and of course an increase in your
equity in the same amount. In other words, the split off of the business
has decreased and increased YOUR equity by the same amount. No change to
YOUR equity.
Michael D Novack
On 1/19/2025 8:12 PM, David Cousens wrote:
Michael,
My assumptions and reasonong in formulating the answer were that the
total equity of the owner after the split comprised the Equity of his
personal accounts plus the Equity of the business accounts. That is
the owner of the business and the business are separate entities for
accounting purposes. The real purpose of spliting the accounts is then
to also split the equity which was previously just in the personal
books before the business books were established and transfer the
appropriate component of the equity and assets to the business entity.
The process of splitting the books necessarily involves a transfer of
equity from one set of books to another.
By recording the business as an asset in the personal accounts no
transfer of equity to the books of the new entity is achieved where
there is a transfer of funds from say a bank account in the personal
accounts to another asset account for the business in the personal set
of books.
Whereas crediting the appropriate asset account from which funds are
transferred to the business (decreasing its balance) and debiting an
Equity account (decreasing its balance) in the personal books recording
contributions to the business decreases the equity in the personal
books and then the second entry entry set in the business' books
completes the transfer of equity to the new set of books for the
business establishing the asset and equity transfer from the personal
books to the business books.
David
On Sun, 2025-01-19 at 10:24 -0500, Michael or Penny Novack via gnucash-
user wrote:
You also own the business.
I would set up an account in Equity in your personal accounts
"Contributions to xyz business" and a similar Equity account in the
business books "Owners contributions".
More generally, you own part of this business.
Why under Equity? Why different from any other investment. I'd expect
to
be putting my ownership share of this business under Assets.
Otherwise
the same. If you use personal funds or credit on behalf of the
business,
the that represents a change in your investment.
But yes, in the business's books, ownership shares under equity.
Michael D Novack
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