QuickBooks is the most popular accounting software for small businesses and freelancers. It allows owners to track the business’s financial performance and position. One important concept in QuickBooks is owner’s investment, also known as owner’s equity. Understanding how owner investment works in QuickBooks is crucial for small business owners and bookkeepers. In this article, we will explain what owner investment means in QuickBooks, how it is setup and calculated, and why tracking owner’s investment accurately matters for your business.
Owner investment represents the owner’s stake in the business
Owner’s investment, also called owner’s equity, represents the owner’s financial stake in the business. It refers to the amount that owners initially invested in the business plus any additional capital invested minus any money taken out or losses incurred over time. So owner’s investment shows what the business is worth to the owner at any given point in time.
Setting up owner’s investment in QuickBooks
When creating a new QuickBooks company file, the owner’s investment account is typically set up during the QuickBooks setup interview. You can specify the initial amount of capital invested by the owner as the beginning owner’s equity balance. QuickBooks will create an Owner’s Investment account under Equity in the Chart of Accounts.
How owner’s investment changes over time
As the business operates, the owner’s investment balance changes based on net income, additional investments, and withdrawals. When the business makes a profit, net income increases owner’s equity. When the owner invests more capital, it increases their stake. When the owner takes money out for personal use, it decreases the investment amount. At any point, owner’s equity shows the owner’s residual claim on the business’s assets after debts are paid.
Why tracking owner’s investment accurately matters
Monitoring the owner’s investment helps assess the growth and profitability of the business over time. It allows the owner to analyze returns on their invested capital. Comparing beginning and ending owner’s equity shows whether the business has increased the owner’s wealth. Changes in owner’s equity are reported on the business’s balance sheet and statement of changes in equity.
In summary, owner’s investment in QuickBooks refers to the owner’s financial stake in the business. It is set up when creating the QuickBooks company file and changes based on profits, additional investments and withdrawals. Tracking owner’s equity accurately is important to monitor the business’s growth and returns for the owner.