Quickbooks offers a myriad of features for tracking your business’s finances, one of which is equity accounts. When viewing your business’s Chart of Accounts, you’ll probably notice an equity account at the top. It provides insight into your business’s investments and owner’s draws. What is an equity account exactly, and how do they work?
What Is an Equity Account?
An equity account is a parent-level account in Quickbooks that contains information about owner’s draws and owner’s investments. An owner’s draw is money that you transfer out of your business’s bank account and into your personal account. An owner’s investment, on the other hand, is money that you transfer out of your personal bank account and into your business’s account. In an equity account, you’ll find these transactions listed.
Why You Should Use an Equity Account
By using an equity account, you’ll have a better understanding of how much money you are putting into your business, as well as how much money you are taking out of your business. Most business owners perform both types of transactions. If their business needs additional money, they’ll invest money into it. If their business is doing well and has an excess amount cash on hand, they’ll draw money out of it.
An equity account allows you to see exactly how much money you are putting into your business and how much money you are taking out of your business. It shows both owner’s equity and owner’s draws. Owner’s equity consists of investments. These are the transactions in which you put money into your business. Owner’s draws, conversely, are transactions that involve taking money out of your business. Although they are called “equity accounts,” they contain both types of transactions. You can find owner’s equity or investments and owner’s draws listed in an equity account.
How to Create an Equity Account
You can create an equity account by accessing the Chart of Accounts feature in Quickbooks Desktop. While logged in to your Quickbooks account, click the “Lists” link at the top of the main menu. Next, click the drop-down menu for “Account” and select the option for “New.” You can then choose the account type, followed by clicking “Continue.”
Quickbooks will require you to enter some details about the new equity account. After adding these details, click “Save & Close” to complete the process.
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