Beginning accounting for a sole proprietorship

[Haroldge]

I am a little rusty on my accounting but if I start a sole proprietorship and put $100,000 into a bank account for it;

My bank account would have a credit of $100,000 because it has increased.

Would a drawing account have a debit of $100,000?

This would make sense to me because the first $100,000 I disburse is not really income to me but just me returning my money to myself.
My understanding is that the drawing acount shows, at the end of the year, what you are taxed on.

So, if I disbruse $120,000 during the year then I would get a K-1(?) for $20,000 for my taxes?

Does the drawing account stay there for perpituity? I mean, if I disburse another $120,000 the second year would I just figure the difference
between Jan 1st and dec 31st and then the second year get a K-1 for $120.000?

Hope I am not way off base here and not confusing anyone. Thanks very much for your input.

[Kruncha]

The 100,000 that you put in is considered Owners Capital and if you withdraw any money from the business then that would be considered a draw and not taxable. The income that you earn in the business will be taxable income to you and increase the Owners Capital of the business. I would suggest that you Google financial statements for sole proprietors as they do have some good examples. I hope this helps.

[jamesray50]

Hi Haroldge -you have your debits and credits reversed. Your bank account will show a debit for the money you deposit into the account and an equity account, Owner Contribution will have a credit. You will not receive a K1 as a sole proprietor, you will used a Schedule C to determine your net income.

Hope this helps!

[Thinkbooks]

Debit Bank $100,000
Credit Owner's Capital $100,000

Depending on the type of business and if you will be dealing with larger amounts you may want to consider incorporating you business to save on taxes as corporations have lower rates and to keep your personal liability to a minimum.

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Cheers