HV Ken Posted February 27, 2015 Report Share Posted February 27, 2015 Picked up a new S-Corp client. Looking at her books, the previous tax preparer (CPA) created an adjusting entry at the end of each year: Debit Owner's Compensation: Automobile Expense Credit Additional Paid in Capital (Equity Account) using the actual mileage * the standard mileage rate (ex. 15,765 miles * .565/mile = $8,907.23). Prior to the adjusting entry, there were no automobile expenses recorded in the books. This is not something I have seen before. Can anyone help me understand what the CPA was thinking with this entry? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 27, 2015 Report Share Posted February 27, 2015 Can anyone help me understand what the CPA was thinking with this entry? Wasn't thinking would be more like it! Do you think it was to record the personal use of a company owned auto since the debit is to compensation, or do you think the CPA was trying to record business miles of a personal auto since the credit is to add'l pd in capital? lol Hard to guess what was going on there. Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 27, 2015 Report Share Posted February 27, 2015 I have seen this before, but it's been many years. It's for the personal use of a business auto. Quote Link to comment Share on other sites More sharing options...
HV Ken Posted February 27, 2015 Author Report Share Posted February 27, 2015 I posted same question elsewhere, and got this response: Owner probably paid for the auto expense from his own pocket. If it is a legitimate business expense, the owner can be reimbursed for it. Instead of paying the owner actual money, especially if there was no money, the owner put in additional capital. The negative RE is ok since there were losses. The additional capital adds basis for the owner, which will allow him/her to deduct the full loss. Each accountant handles this differently. Some net it against any distributions. Some record a payable to the owner. 2 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 27, 2015 Report Share Posted February 27, 2015 (edited) I have seen this before, but it's been many years. It's for the personal use of a business auto. I think you have that backwards. It is for the BUSINESS use of a PERSONAL auto. Sounds right to me, if there is a mileage log to back it up. I would have put it in auto expenses or travel costs rather than compensation. Tom Newark, CA Edited February 27, 2015 by BulldogTom 2 Quote Link to comment Share on other sites More sharing options...
Randall Posted February 28, 2015 Report Share Posted February 28, 2015 Yes (agree with Bulldog), if business mileage. I would offset distribution. Debit to Auto Expense, credit to distribution (if enough already there to offset). I don't understand the debit to compensation since that should flow thru the W2 payroll reporting. 1 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted February 28, 2015 Report Share Posted February 28, 2015 It's just unreimbursed mileage. You can swap checks but why bother? If there's cash in the corp just write a big check at year end. It's like a tax-free bonus. Quote Link to comment Share on other sites More sharing options...
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