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In terms of QuickBooks...

How does a newly started business, an LLC in my case, account for payments received and money spent PRIOR to having organized business bank accounts in place? Is there a way to draw a line in the sand and say on 8/18/2011 the Business Checking Account was created with a balance of $1,234.56 (the remaining cash after receiving past payments and spending on expenses)? I find it hard to believe that a newly started business had a dedicated account on Day 1 with a balance of $0.00 and then said "let's start a business!"

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Funds earned and spent before opening a dedicated business account should be classified according to their origination.

For example, if your business received income, where did that money go? If you took the money personally, it would be considered either a 'distribution' or a 'loan' to you. It is up to you which of the two options you choose.

On the flip side, if your business had an expense that you paid personally, that would be considered either a 'contribution of capital' or a 'loan' from you.

If you choose to record these transactions as loans, you can offset them together, so you don't need two separate accounts, loan to you and loan from you.

When the bank account was opened, the initial deposit came from where? If it came from your personal funds, then it is either a 'contribution of capital' or a 'loan' from you.

From the sound of your question, you deposited what remained after the preceding income/expenses. This would, in effect, return the 'loan' account back to zero, if choosing that route.

The above would also be how to record any expenses you may pay personally for the business (if any) in the future.

Because these transactions were not through a dedicated business bank account, you can't record them in Quickbooks as checks and deposits. Instead, you can use Journal Entries. For any income received, you would debit your capital/loan account and credit your income account. For any expenses, you would debit the appropriate expense account and credit your distribution/loan account.

Also, if setting up a loan account, you should choose either Current Asset or Current Liability type. The capital contribution and distribution account should be Equity type.

Hope this helps!

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    Yes, that is correct. You may have to go about this in a roundabout way, though, since Quickbooks doesn't have a specific way of accounting for this. You can still issue invoices and receive payments through Quickbooks, so that your A/R is accurate. However, when you 'Receive Payment,' select the option to include that payment with other Undeposited Funds. 'Undeposited Funds' is an account QUickbooks automatically sets up, as a holding place for payments until they are deposited. Then, your deposit can include multiple payments in one transaction. – superjessi Aug 26 '11 at 15:54
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    Then, enter a journal entry to decrease 'Undeposited Funds' and increase your Loan account. Essentially, payments will be going in to 'Undeposited Funds' and then coming right back out. In order to clear out these payments (kind of like reconcile) enter a deposit on any arbitrary date to any bank account (it's a fake transaction anyway). Select all the payments, both in and out sides. In the end, the deposit amount should equal zero. Record that deposit. It will not affect your numbers, but will clear out those payments so you don't have to stare at them all the time. – superjessi Aug 26 '11 at 15:56
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    Yes, the total $500 should be classified as income, but the $20 fee would be classified as some type of bank fee. – superjessi Aug 27 '11 at 19:59
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    Yes, you got it. The 'Name' field is really up to you, it is not necessary to include anything in that field, but is more for your tracking and reference. In the future, you would not record the fees through a journal entry, it's just because of the situation at the time with not having an 'official' bank account. Instead, when you enter the deposit, you would add a line item with a negative dollar amount, representing the bank fees. The net deposit amount should come out to what actually was deposited in your account. – superjessi Aug 27 '11 at 22:20
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    You can move the funds directly to the business bank account in Quickbooks. I would suggest adding a note in the memo field, just so you remember what happened. Shortcuts like this are ok, as long as the end result is the same and the transactions occur in the same tax year. – superjessi Aug 30 '11 at 2:38

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