QuickBooks is a very popular accounting software designed especially for small and large businesses. It offers two types QuickBooks Online & Desktop, you can download QuickBooks Desktop trial version from the official site. Many business owners use it for their daily financial tasks. And an important part of QuickBooks is “Members Equity”, but many people do not understand the exact meaning of this term. In this Blog, we are discussing “What is Members' Equity in QuickBooks?” In Details.

What is Member’s Equity?

Members' Equity is a financial term that represents the percentage of ownership that the owners or members of a business have in the company within an LLC. When a member invests money in the industry or withdraws money, it is reflected in the Members' Equity Account. In essence, this equity displays the company's history of gains, losses, contributions, and withdrawals.

Role of Members’ Equity in QuickBooks

When you set up an LLC account in QuickBooks, the system automatically creates a Members' Equity account. Its main job is to track the owner's contributions and withdrawals, as well as show the cumulative profit or loss of the business. This data is shown in financial reports such as the Balance Sheet, which gives you a clear picture of how strong your business is financially. 

Record of Owner Contribution and Draws

A member's financial investment in the company is referred to as an owner contribution. The members' equity is increased by this donation. If money is withdrawn by a business member from a member's business accounts for personal use, it is called an Owner Draw. It is important to properly categorize both of these transactions in QuickBooks to keep your financial records accurate.

How to View Members' Equity in QuickBooks?

You can view the “Members' Equity” account by going to the “Chart of Accounts” section of QuickBooks. Or you can also see the total equity value of your business by generating the "Balance Sheet" report. This report will tell you how much your business owner has contributed and how much has been withdrawn until now.

Does members' equity change?

Yes, when you

• Investing new money in the business

• Withdraw money from the business

• Business shows profit or loss

So the amount of members' equity changes. This demonstrates the company's financial stability.

Importance of Tax Filing

When you file taxes, reporting of members' equity becomes important if your business is an LLC. You must demonstrate to the IRS each member's equity percentage and the distribution of earnings and losses. QuickBooks helps automate this process if you enter the data correctly.

Members' Equity Vs Owners’ Equity

• Members' Equity has an LLC Structure, but Owners’ Equity has a Sole Proprietorship Structure.

• Although it might have several owners, Owners' Equity does not.

• In Members' Equity, the Draws & Contributions have a Track per Member, but Owners’ Equity Draws & Contributions have one account

• In case of Members' Equity, Profit Sharing was based on the member agreement, but in Owners’ Equity, the Profit Sharing is decided by the owner.

Common mistakes that you should avoid

Many business owners mistakenly record owner contributions as income or consider withdrawals as expenses. By doing this, your financial reports may be incorrect. Always make entries under equity types such as “Owner's Draw” and “Owner's Contribution” so that your members' equity is tracked correctly.

Conclusion

Members' equity is an essential concept in QuickBooks that provides a transparent record of business ownership and financial transactions. If you are the owner of an LLC, then you should know how to use this account properly. This will not only help you maintain accurate financials but will also be useful for the IRS at the time of audits and tax filings.

FAQs

• Is Members Equity applicable to every business structure?

No, it is for the greed of personal growth. For sole proprietors, the term owner's equity applies to them.

• Can members' equity be understood as income?

No, it is not income. It is the business's retained profit or the owner's contribution.

• Does QuickBooks automatically create Members' Equity?

If you select LLC during setup, then yes – it is created automatically

• Can I customize the Members Equity report?

Yes, you can customize reports in QuickBooks by Date, Account, etc.