DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Purchase Invoice question? Owners Equity missing


#1

I noticed today that the Purchase Invoice screen does not include the “Owner’s Equity” account in the “Accounts” dropdown list. If this a bug or by design?

It is very possible for a purchase to include both legitimate business and personal items.


#2

I think it’s a more correct way to account this registering the debt to a supplier and then converting it to equity via journal entry. This also due to the fact that, by law, you should sign a contract and have an assessment of the gods to convert it to equity


#3

This is by design, not a bug. Go back to fundamental accounting.

A purchase invoice debits an asset or expense account (like Inventory on hand or Computer equipment) and credits a liability account (Accounts payable or whatever account you have assigned the supplier to). In other words, it records the increase in something the business owns (inventory) or an expense of the company (computer parts) and a balancing increase in what the company owes the supplier. The debit account is what you are selecting from the dropdown list. (In the case of inventory, that choice is fixed by the inventory item definition.) The credit account selection is automatic and cannot be changed. It is determined by the supplier’s profile.

If you try to record a personal purchase with a purchase invoice, the company would not own the item, so it would not be appropriate to debit any account representing ownership of it by the company. So, it cannot post to Inventory on hand and it cannot post to an expense account implying ownership like Computer equipment. Likewise, the company does not owe the supplier for the item, you do personally, so it is not appropriate to post the credit to Accounts payable. Yet if you could choose Owner’s equity on a purchase invoice as the debit account, both these things would happen.

Does that mean you cannot buy personal goods or services through the company? No. You have choices:

  • Record the purchase invoice as you normally would, thereby buying the item for the company. Then, personally pay the company to buy the item from the company. Enter an ordinary receipt to record the sale to yourself. For this approach, you must actually give money to the company.
  • Buy the item directly with a payment transaction rather than a purchase invoice. Allocate the transaction (and thus the debit) to Owner’s equity, which is allowed. This reduces your investment in the business and is equivalent to an owner’s draw. It would be as though you drew equity from the company and paid the supplier yourself.
  • Buy the item with a purchase invoice. Then use a journal entry to buy it personally from the company. Debit Owner’s equity and credit the asset or expense account where you posted the purchase originally. This is equivalent to taking a draw in equivalent goods or services.

You may have noticed that these options accomplish the same thing as being able to allocate the debit side of a purchase invoice transaction to Owner’s equity in the first place. But the prohibition on doing so directly prevents the overall process from mistakenly being abandoned half way through. There can be no incomplete or incorrect transactions, even temporarily.


#4

If you enable the “Capital Accounts” tab and create at least one capital account you can then select these capital accounts in a Purchase invoice


#5

Yes

Not to put a to finer point on it, but your entire ramblings is garbage - so to keep it simple

You use a tax agent to do your business and personal tax returns, but they charge you for both on the one invoice which is addressed to the business, so you create a “Drawings” account under Equity (1) which becomes selectable on the Purchase Invoice (2)

(1) 0000000%20Bug%201 & (2) 0000000%20Bug%202

Then you process the invoice by splitting the allocations over two lines - P&L Accounting & Drawings accounts
0000000%20Bug%201a


#6

Thanks @Tut. Was hoping for something a bit more streamlined. I understand what you are saying though.


#7

Thanks @Brucanna. This is exactly what I was looking for and works perfectly for my specific needs.


#8

@ccs, the shortcoming of @brucanna’s approach is that it doesn’t answer your question of how you get the transaction to Owner’s equity. For that, you need more or different entries, as I originally explained in my garbage ramblings.

What @Brucanna suggests is creating one-third of a normal capital account structure, that is, only the Drawings subaccount. @generalegend had already suggested using a capital account, which would have automatically created the Drawings subaccount. And, of course, that works just fine. But an Owner’s equity account suggests you are a sole trader/proprietor, and a capital account is not actually necessary.


#9

@Tut - I understand your points… As a sole proprietor, I think the solution offered by @Brucanna will work for me as it allows me to handle everything needed while entering the purchase invoices.

Thanks.