Navigation:  Chart of Accounts > Equity accounting for sole traders/proprietors

Many small businesses are owned by a single person, often called a sole trader or sole proprietor. But MYBOS's default account structure accommodates other, more intricate business organizations. So it may encourage more complexity in the chart of accounts than necessary.

 

Every new business created in MYBOS automatically includes a Retained earnings account, essentially the net of all inflows and outflows, adjusted for various transfers, dividends, etc., since creation of the business. In many cases, the Capital Accounts tab is also enabled, members (owners of capital accounts) are designated, investment contributions and draws are recorded, and so forth. Frequently, journal entries transfer amounts between Retained earnings and Capital Accounts. And both Retained earnings and Capital Accounts are included under the Equity heading on the Balance Sheet. But for the sole proprietor, things can sometimes be simpler.

 

As sole owner of the business, a proprietor owns the Retained earnings account. So no real reason for separate capital accounting exists. Retained earnings can be renamed as Owner's equity, eliminating the need for other equity accounts. Benefits include fewer tabs enabled in MYBOS and reduction of equity transfers. Any transactions that might have involved Capital Accounts can instead be allocated directly to Owner's equity.

Eligibility for simple equity accounting

 

Two requirements must be satisfied to use this simple equity accounting:

 

 

Setting up simple equity accounting

 

Rename Retained earnings under Settings => Chart of Accounts:

 

=>

 

Click Edit to the left of the Retained earnings account name:

 

 

Rename the account as Owner's equity. Add an account code if desired. Click Update when finished.

 

 

Your chart of accounts will now show the new name with the original, default name below in gray, revealing the automatic origin of the account.

 

 

Your Balance Sheet will show a very straightforward equity account structure:

 

 

In essence, Owner's equity shows how much value you have invested in your business at a given moment, taking into account all forms of assets and liabilities, including unbilled time and expenses, cash and equivalents, fixed assets, loans, accounts payable and receivable, and so forth.