Owner’s equity in a sole proprietorship
Actually, tracking owner’s equity in a sole proprietorship is easy. You can use the single account that QuickBooks sets up for you, called Opening Bal Equity, to track what you’ve invested in the business. (You may want to rename this account something like Contributed Capital.)To track the money you withdraw from the business, you can set up and use a new owner’s equity account called something like Owner’s Draws. Here's an example of owner’s equity accounts in a sole proprietorship. Note that the numbers inside parentheses are negative values.
| Account | Amount |
| Contributed capital | $5,000 |
| Retained earnings | $8,000 |
| Owner’s draws | ($2,000) |
| Owner’s equity (total) | $11,000 |
Owner’s equity in a partnership
To track the equity for each partner in a partnership, you need to create three accounts for each partner: one for the partner’s contributed capital, one for the partner’s draws, and one for the partner’s share of the distributed income.Amounts that a partner withdraws, of course, get tracked with the partner’s draws account.
The partner’s share of the partnership’s profits gets allocated to the partner’s profit share account. (Your partnership agreement, by the way, should say how the partnership income is distributed between the partners.) Check out this example of owner’s equity accounts in a partnership.
| Account | Partner A’s Amount | Partner B’s Amount |
| Contributed capital | $5,000 | $7,000 |
| Profit share | $6,000 | $6,000 |
| Draws | ($3,000) | ($4,000) |
| Equity (total) | $8,000 | $9,000 |
Owner’s equity in a corporation
Yikes! Accounting for the owner’s equity in a corporation can get mighty tricky mighty fast. In fact, college accounting textbooks often use several chapters to describe all the ins and outs of corporation owner’s equity accounting.As long as you keep things simple, however, you can probably use three or four accounts for your owner’s equity:
- A capital stock par value account, for which you get the par value amount by multiplying the par value per share by the number of shares issued. The par value of the stock is written on the face of the actual stock certificate, and it’s stated in the corporate Articles of Incorporation.
- A paid-in capital in excess of par value account for the amount investors paid for shares of stock in excess of par value. You get this amount by multiplying the price paid per share less the par value per share by the number of shares issued.
- A retained earnings account to track the business profits left invested in the business.
- A dividends paid account to track the amounts distributed to shareholders in the current year.
| Account | Amount |
| Par value | $500 |
| Paid-in capital in excess of par value | $4,500 |
| Retained earnings | $8,000 |
| Dividends paid | ($3,000) |
| Shareholders’ equity | $10,000 |