Beginning Balances in Capital Accounts

Hello, Have searched on this topic and did not find anything that addresses this. Manager Version 17.9.92.
Closed drawing account to equity at year end. Account summary looked as follows:

Subsequently set period to 1/1/2018:

This is not what I would have expected. I would think that the beginning balance as of 1/1/2018 should be the ending balance of 12/31/2017 of $1180.00. The $4150 beginning balance was an outstanding invoice from 2016 that was entered for starting the use of Manager at 1/1/2017 and was entered as an unpaid invoice 12/31/2016.
Tried setting the Lock Date to 12/31/2017 and no change.
What am I missing here?
Thanks for the help, Scott

Try changing START DATE not Lock date

Why would one wish to change the start date when the actual start date of the business accounting was 1/1/2017? This makes no sense. I tried it anyway and all of the balances were corrupted as the system ignores all of the transactions from 2017.

According to my understanding

when you move to manager for the first time.
the beginning balance will start at the start date.
the transactions before start date belongs to previous financial period.

when you keep using manager and complete your first financial year
the start date can be change to start date of financial period. then all the transactions before this new financial period start dates goes to starting balance equity.

Hope you understand or wait for someone else to correct me or give better explanation. :smiley:

Well, thanks for the attempt, raj_nann, but the suggestion does not work for me. It ends up showing all of the 2017 accounts receivable as due (ignores the cash receipts postings). Perhaps this is a bug with my version. I will check that out.

Please ignore @raj_nann suggestions regarding the start date as they are completely wrong.
You only setup the start date once and that is the date when you start using Manager from a previous accounting system

@Scott.E it would appear that the 2000 difference is due to a transaction dated 1/1/2018 or later. Click on the Retainer on account balance (blue figure) and check on the transaction date(s.

Also that Starting balance equity balance shouldn’t be there. Base on your comments you need to enter a starting date balance for the Capital Accounts sub-account Contributions for 4,150 (Paid in Advance)

@Scott.E, you also have an unusual structure to your chart of accounts. Proprietor’s equity would not normally be used if you have one or more capital accounts. (You did not specify your form of organization.) It’s commonly one or the other if you are the sole owner, either a capital account or Proprietor’s equity. You also no longer have a Retained earnings account, so I suspect you renamed it as Proprietor’s equity, correct?

Retained earnings is the net of all investments, contributions, draws, income, and expenses since the business was started. The typical process when using a capital account is to let profits accumulate there until you periodically distribute them to your capital account(s) by journal entry. From there, you pay out dividends or profits with a bank or cash transaction (according to how you are organized.

On the other hand, if you are a sole proprietor, you can use that account as Proprietor’s equity, but then you don’t need a capital account.

Brucanna, thanks for the suggestions. The $2000 difference on the second screenshot is for a debit to A/R and a credit to Retainer on Account for an invoice dated 1/1/2018 and does not show on the first screenshot as the date range for that one was 1/1/2017 through 12/31/2017 and has no impact on the capital accounts. The $4150 was for an open A/R invoice prior to the starting date of 1/1/2017. An invoice dated prior to the start date was entered as instructed by the online documentation (please see topic Manager Cloud).

Hi Tut, thanks for the input. This is a sole proprietorship, but I wanted to track the actual draws out of the business account. You are correct that “Proprietor’s Equity” is the retained earnings account. I just happened to rename it that. The first screenshot includes a year end posting to Credit and clear the Capital Accounts (Draws) to the “Proprietor’s Equity” account Debit (Retained earnings). It may seem odd, but it suits my purposes. However, in either case, I don’t think it would correct the issue of not seeing the changes I was expecting. Perhaps I am stuck with the starting balance is is.

That’s a fine decision, and that’s what the Drawings subaccount does. When you enter a payment from your bank account, posted to the Drawings subaccount, that means you have removed money from the company. In other words, you no longer have that money invested in the business. But you cannot also transfer the money to Proprietor’s equity. Because an equity account is a measure of what is invested in the business. So you are completely misrepresenting your position.

Now, maybe you didn’t take money through a payment from your bank account. Your language is a little vague on that. Maybe you are just segregating equity into a separate account from your capital account. If so, why? Since you are a sole proprietor, you own both the capital account and the Proprietor’s equity account. So you haven’t accomplished anything except to confuse your accounting records. It won’t protect anything from taxation or help you get a loan or anything else.

And by the way, crediting your capital account puts money into it. Debiting Proprietor’s equity takes money out. That is because both are equity accounts and, therefore, credit accounts.

There are further problems with what you have explained. You say the $2,000 transaction on 1/1/2018 debited Accounts receivable and credited Retainer on account. That makes no sense. The posting to Accounts receivable says the customer owes you money. That should be balanced by a credit to an income account for goods or services performed. A retainer implies the customer paid you money that you are “working off.” If so, that should have been entered as a deposit or advance. See this Guide: Manager Cloud. Or you might have been more sophisticated and set up a special account to handle the advance. The problem is that your assets don’t show you as having any money. So you cannot owe money or anything else of value to the customer.

Yes, but you also need to enter that amount as a contra starting balance into another account, having that Starting balance equity account balance indicates that that contra entry hasn’t been entered, or other words, having that account is wrong.

If you were using a previous accounting system up to 12/31/2016, then any balance sheet account balances (including equity) as at 12/31/2016 need to be entered as starting balances for 1/1/2017.

Not exactly, the closing balances at one minute to midnight on 12/31/2017 will be the same as the opening balances at one minute past midnight on 1/1/2018 but as soon as you enter a transaction during the day of Jan 1, (your 2000 invoice) then the balances for 1/1/2018 must change.

A retainer implies a protection.

“Retainer on account” can exist. A customer engages a supplier to do a quote for design and installation of landscaping. The supplier takes on the project and charges a retainer on account that the customer after seeing the design and quote will continue with the install. If the customer withdraws from the install then the supplier has still been paid (via the retainer) for the design component. Stops the customer seeking cheaper quotes without paying for the design.

If I understand your example, there was a payment, which was my point. In the illustration, there was no money showing anywhere.

Not yet, the customer has been invoiced for the retainer but it hasn’t been paid. Therefore the design work doesn’t commence until that payment is received.

Wow. So much to respond to here. Again, thanks for your input.

To Tut: Brucanna is correct that the entry for $2000 is an invoice to the customer for a retainer for future billings and the amount has yet to be paid, hence the $2000 debit to A/R. I am sorry the open invoice has led to additional issues on this question.
I have realized that in processing “Draws” from the capital accounts, I had failed to make the allocation of profit to the capital accounts from retained earnings. I am going to correct this situation and observe the result and will get back to you.
Thanks again, Scott

OK. Thanks for the clarification, @Scott.E. That removes the invoice for the retainer from consideration in resolving your difficulty.

Yes, this a normal step that keeps Retained earnings from growing endlessly over time. However, why do this and then transfer from your capital account back to Retained earnings or Proprietor’s equity or whatever you want to name it? Transferring from Retained earnings to Capital accounts > Scott > Share of profit essentially says that the money is no longer being held by the business for operations but has been designated as being for your personal use and, therefore, is available to draw upon. Next, a payment transaction posted to Capital accounts > Scott > Drawings will record removal of the money from the business entirely. By definition, that is what drawings do. Transferring anything from a capital account to your personal equity account is just pointless.

Correcting these procedures won’t do anything for the Starting balance equity account that should not be there. That account was created automatically as of your start date because the books had to balance. Rather than rejecting other inputs, Manager cached the misbalance there so you could correct it. If you had a previous double-entry accounting system, the Accounts receivable balance would have been matched somewhere on your balance sheet, most likely in that system’s equivalent of Retained earnings (assuming accrual based accounting). That is because the money would have been earned, even though not yet received. Conceivably, it could also have been transferred to capital to close out the previous books, but I think you would remember that.

Tut, thanks for the response. If your are saying that the $4150 entry in “Starting Balance” is because the entry I made for the open invoice is not balanced somewhere, that is beginning to make sense. The fact that the Starting Balance appears is to indicate that something is out of balance prior to the operation of 2017, correct? I just need to find out how the entry should be balanced.
With regard to the closing entry, I am sure that it is incorrect as I need to make the entries for the allocation of profit. However, when the year end is closed in preparation for the new fiscal year, my understanding is that the Drawing account should be closed back to the capital account so that the beginning balance for the next fiscal year is correct. The cash has already been removed from the asset balances.


Step 4: Close withdrawals to the capital account

Note: This step is applicable only to sole proprietorships and partnerships.

In a sole proprietorship, a drawing account is maintained to record all withdrawals made by the owner. In a partnership, a drawing account is maintained for each partner. Drawing accounts are closed to capital at the end of the accounting period.

Our example is a sole proprietorship business. Mr. Gray’s withdrawals are recorded in Mr. Gray, Drawing. To close the drawing account to the capital account, we credit the drawing account and debit the capital account. Notice that drawings decrease capital.
Mr. Gray, Capital 7000.00 DR
Mr. Gray, Drawing 7000.00 CR
End of example.
Once that entry is posted and the year is rolled to the new F.Y. then the beginning Equity (Retained Earnings) should be the ending equity balance from the previous year. I will play around with all this and report back. Again, thank you all for your input. I very much appreciate the help.

Success! Thank you all for your help with this subject.
Firstly, the original invoice that was open as of 12/31/2016 needed to be offset with a credit to the Starting Balance to the “Proprietor’s Equity” account (retained earnings) and that removed the “Starting Balance” entry from the Equity portion of the balance sheet, which was the issue originally brought to the forum. Thanks, Tut. for giving me the clue to this.
Second, entering the “Share of Profit” J.E.s eliminates the need to do the year end adjustment mentioned in my previous post.
The end result for the beginning of 2018 is now exactly what I was expecting.
Thanks again all for you help!
Best regards, Scott

Glad you’ve sorted things out.

Be careful about reading accounting texts and web sites, though, especially when they start into the hoopla about closing entries. Manager is a perpetual system, so you don’t need closing entries. You just reset the period displayed for the Summary. Be sure you have read the Guide: Manager Cloud.

The good news is that you will never go through this again with Manager. Starting balances are a one-time thing.