Recording LLC startup expenses

I’m loving Manager so far, and so glad I found it so I didn’t have to use Quickbooks! :slight_smile:

Anyway, my wife and I started a 2-member LLC and had lots of startup expenses we initially paid out of our personal funds. Things like LLC filing fees, computer, office supplies, land (yes, land for a new construction), and various other things that had to be paid before we were able to establish a bank account and credit card for the LLC.

We may eventually want to be paid back for some or all of that, but for now we just want to properly record everything as equity/funds contributed by each of us.

Since this whole LLC thing is new to us, how can I properly record all those startup expenses in Manager without having our personal accounts setup in Manager, and without affecting any of our cash accounts?

Oh, and I also need to record the money we personaly gave the business which became the opening deposit amount for the LLC checking account. That would also be equity/funds contributed.

Thank you!

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First, set up capital accounts for the two LLC members. See the Guide:

For items you purchased on behalf of the LLC with personal funds, use expense claims. See this Guide:

As Payers, be sure to choose from the Members category (if you also have yourselves set up as Expense Claims Payers). That is all explained in the Guide. Payback can come as draws from capital or could be reimbursed. That is explained, too.

Contributions of cash are recorded using Receive money in Cash Accounts tab, allocating the receipt to the capital account of whoever made the contribution.

As you are a LLC, that means you are a Shareholder corporation. The only items that can be allocated to the Capital Accounts are the value of the issued shares themselves. All other provided funding “MUST” be allocated to Shareholders or Directors Loan accounts setup under the BS Liabilities.

To take up the funding for the prior expenditure use the Expense Claims tab as mentioned above but you “MUST” set yourselves up under Settings - Expense Claim Payers. Do not use Members category for Expense Claims as that is limited to sole proprietorship or partnership organisations

For the organisations Issued Share Capital you have two options, 1) the Capital Accounts tab or 2) a direct Equity account called “Issued Shares”

Once you have setup the bank account under the Cash Accounts tab you would use the Receive Money button. The Account will equal the Loan Account for which ever Shareholder/Director who provided those funds.

This is absolutely not true. @maudman is located in the United States, where the Internal Revenue Service treats multiple-member Limited Liability Companies (LLC’s) as partnerships and single-member LLC’s as sole proprietors. Everything you say in both your posts is, therefore, inapplicable. In the United States, an LLC specifically is not a shareholder corporation, which would be called one of several forms of–you guessed it–corporation. All LLC income is taxed on the personal returns of the member(s).

I am aware that in some other jurisdictions, an LLC is a shareholder corporation, but not in the United States.

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Trust the USA to convert standard english terminology “Limited Liability Company” into something its not.
So its the company you have when you don’t have a company - or is that a “fake” company.

Thank you @Tut for the helpful responses! I’ve been working my way through the guide, but there’s a lot of info there.

Quick follow up question… Would the same advice apply to a real estate land purchase (vacant land for building) that was paid for out of our pockets? We would just enter an expense claim against a Land asset account?

Thank you again. I’m LOVING Manager. Can’t imagine why anyone would ever want to use Quickbooks! :slight_smile:

You should consult an accountant about your land purchase. In the USA, land cannot be depreciated, so it may be advisable to account for land owned by the company in some other fashion than in the fixed asset module. That’s a question that is beyond the scope of this forum. But as long as the land is actually owned by the business, Manager can handle whatever setup your accountant wants. Land is often put into a separate category, and you can arrange your chart of accounts in complicated ways with groups, etc.

Understood. Thanks for the reply @Tut. I’ll check with my CPA on how he wants me to record it. Sorry for the dumb questions… I’m kinda new to accounting for an LLC, and especially for anything that has to be depreciated. :slight_smile:

Just remember that in your situation, the LLC is a partnership. Read the IRS pubs on related topics.

Thanks for the advice @Tut. I definitely need to read the IRS pubs to better understand, but I’m also working a tax guy who is a CPA and registered agent.

I ran across another question today while trying to record our commercial loan in Manager.

I credited Notes Payable and debited my fixed asset account. However, there were closing costs that came directly out of our business checking account. I can’t figure out how to show that in a journal entry. There’s no place I can see to indicate the closing costs actually came from the checking account. I’m sure I’m missing something simple.

Without knowing the full sequence of events, it’s tough to tell you exactly what you should have done. But in general, you seem inappropriately focused on journal entries. Forget what your CPA guy may be telling you, as he is probably speaking in terms of classical accounting procedures and education. In Manager, you cannot enter any transaction involving the movement of money as a journal entry. In fact, journal entries in Manager should be rare events, because the complexities of figuring out which accounts to debit and credit (which are beyond many users) have mostly been removed. Yes, they still happen, but its all done behind the curtain.

So let’s assume you started a business, opened a bank account with some money you contributed, then arranged a loan and bought a fixed asset. No journal entries would have been required. And you would never have had to figure out which accounts to debit and credit. The sequence would have been:

  1. Add the business to Manager.
  2. Enable Cash Accounts tab and create a cash account for your bank account.
  3. Enable Capital Accounts tab and create two members. This gives you some automatic subaccounts, including Contributions.
  4. Receive money in the bank account for your personal contribution. Post the transaction to Capital accounts, Member, and Contributions. Now you have matching balances for your bank account and capital accounts on the Balance Sheet.
  5. Create a Loan payable account as a liability account.
  6. Record proceeds of the loan by receiving money in the bank account, posting the transactions to Loan payable. Now you’ve got your contribution plus the loan proceeds in the bank account, balanced by the sum of the Loan payable amount and your capital accounts.
  7. Enable Fixed Assets tab and create the specific asset you are going to buy.
  8. Spend money from the bank account, posting the transaction to Fixed assets, Specific asset.

You’ll never repeat steps 1,2, or 3. You might repeat 4 if you contribute more money later. You will only repeat 5 and 6 if you get another loan. You’ll never repeat 7 unless you by other fixed assets, and then only the last half. You’ll never repeat 8. But I could literally have done all those things in Manager in half the time it took me to write them out.

Depreciation on the fixed asset will now occur within the Fixed Assets, because no money will be moving. You will only be recording periodic depreciation expense. Note that this is an allowable expense, not a real, current one.

I’ve already made it through all those steps and I’m cruising along nicely with everything else except the loan.

We obtained a commercial loan to pay for the construction of two buildings. No loan proceeds went into our bank account. They were draws that went to the contractor/builder and now we will pay the loan back over time.

When we went to closing on the loan, we pulled a few thousand out of our checking as a cashiers check to cover closing costs on the loan, and that transaction shows up in the checking account. I need to record the loan, and those closing costs were part of the transaction.

So I was using a journal entry in order to credit Note Payable (the loan), Debit the fixed asset account for each asset (the buildings), and somehow record those few thousand dollars that went toward closing costs .

At this point, I’m not sure how my accountant wants me to record the closing costs (bank fees, legal fees, recording fees, etc).

And I wasted all that time writing about somebody else’s situation. :wink:

For the loan, it sounds like you did right:

Dr Fixed assets/Building
Cr Loan payable

If this was done as a series of contractor draws from the bank, these would accumulate as initial cost of the building.

Closing costs are complex. Your CPA will need to decide whether you capitalize them as part of cost of the building, treat them as current bank charges, or whatever. It sounds like they did not come out of loan proceeds, so that makes it a little simpler.

If they are to be capitalized along with the building, use a Spend money transaction from the bank account (assuming its a business bank account). This would be equivalent to:

Dr Fixed assets/Building
Cr Bank account

If this was paid from your personal bank account directly to the bank, you should use an expense claim, posting the claim to Fixed assets/Building. See the guide about expense claims to understand how this makes its way into your capital account.

If the closing costs are not capitalized with the building, a straight payment posted to Bank fees is the way to go. In this situation, such a payment from personal funds would still be an expense claim, posted the same place. Again, it would end up in your capital account.

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You’re awesome @Tut! This is extremely helpful. I’ll talk to my CPA about how he wants me to handle loan closing costs.