Showing Owner Investment

Where would I record the following information for my business which is a sole trader / proprietor.?

  1. I have €2000 in cash (personal funds) that I want to invest into my business. Where & how do I record this transaction? The funds will then be used to purchase stock, website development etc.

  2. I also have approximately 3000 products with a value of roughly €5000, that I purchased last year, when this was just a hobby. I officially became a business on 01/01/2016 this year. I want to transfer this stock into the business. Again where and how do I show this investment into the business?

Thanks for your help in advance!

That will depend on how you set up your chart of accounts. Good advice is to spend a little for advice from an accountant now to keep you out of trouble later.

In general, however, assuming you deposit this working capital into a company bank account, just Receive Money in the bank account and allocate the transaction to an equity account. If you are setting up an owner’s capital account, allocate it there. But since you are a sole trader, everything the company owns belongs to you. A simple alternative is to rename Retained earnings as Owner's equity and allocate it there. Then there is no need to activate the Capital Accounts tab.

First, you will have to activate Inventory Items. Then, create all your items. You can read how to do this in the Guides. I assume the question you are really asking is how to handle this contribution of inventory purchased from personal funds. The answer is to use an expense claim, which is used to record company expenses paid from personal funds. You would otherwise handle this just like a purchase invoice, allocating to appropriate inventory accounts. The bigger question is what value to assign. Here, you will need to consult your accountant for local laws in order to understand whether you can value the stock at what you paid or must depreciate the value in some way. Essentially, though, an expense claim is like a contribution of capital. The transaction will create a liability in Expense claims account, because the company owes you money. That liability must then be cleared in some fashion. You can either reimburse yourself by spending money from a bank account, or you can use a journal entry to transfer the claim to equity, debiting Expense claims and crediting Owner's equity. In a startup situation where the company is not yet flush with cash, the latter approach would be more usual.

2 Likes

If you want to track Inventory quantities then as @tut suggests “First, you will have to activate Inventory Items. Then, create all your items” During the creation of your items you are given the option to input opening balances

On completion the BS Inventory On Hand would approximately equal your 5000.
Once you have the exact amount you would then enter that figure as the starting balance in the COA equity capital account that you use. Then you would have taken up the starting balances of your business appropriately.

Good luck with setting up 3000 products, assuming that they all have stock quantities.

1 Like

Thanks guys!

Your answers make perfect sense. I had already started uploading the inventory & it’s mostly done.

I was stupidly creating a purchase order for each one afterwards to show where the inventory came from & how much, not realising that this was creating a liability instead of an investment.

In relation to Brucanna’s response, should I input the average cost? Iam inputting the purchase price & was also inputting the purchase price into the average purchase cost too. Is it best advice to keep doing this or to leave it blank?

For your opening stocks, just use the purchase price, the average price will look after itself as you do future purchases.

1 Like