I am new to QuickFile and am trying to align it to the elements my accountant uses in our annual accounts. My latest question relates to the idea of an ‘Equity Account’.
There are two partners in my business and I expected that I would be able to equate the business’s ‘Net Worth’ (i.e. ‘Fixed Assets’ + ‘Current Assets’ - ‘Current Liabilities’) to our two ‘Equity Accounts’. Our accountant does precisely that in the annual accounts, though he does not explicitly call them ‘Equity Accounts’.
However the QuickFile ‘Balance Sheet’ report just seems to add anything in an ‘Equity Account’ to the ‘Current Assets’ as though it were an ordinary bank account. Have I misunderstood the role of an ‘Equity Account’ or am I just doing it wrong?
The “equity accounts” in the bank accounts section are just treated as bank accounts so you can easily use them for things like when partners make purchases for the business with their own money.
What I have done for my business is to create additional nominals in the “capital and reserves” (3xxx) section to represent capital introduced, drawings taken and share of the profits for each individual partner. At year end I clear the balance from each partner’s equity bank account into their “drawings taken” nominal, and in the year end journal I split the retained profit between the partners according to the accountant’s calculations. The sum of each partner’s capital introduced, drawings taken and profit share should then equal their “current account” figure from the accountant.