PROPRIETORSHIP

1. WHERE THE $$$$ GOES PROPRIETORSHIP CORPORATION • In a proprietorship, when the company makes money it’s called net income. Net income benefits the one owner and is therefore closed to the Owner’s Capital account. • The Owner’s capital account consists of: • Investments from the Owner • Any Net Income made by the company • In a corporation, each time a person wants to buy a share of stock, the investment is recorded in an account titled Capital Stock. When the corporation makes money, it’s still called net income, however it is closed to an account called Retained Earnings. Therefore, with a corporation, infusions of money are classified as follows: • Investments from Owners or Shareholders are classified at Capital Stock. • Net Income made by the corporation is classified as Retained Earnings. In order for Retained Earnings to be distributed, a dividend has to be declared.

2. HOW THEY GET PAID PROPRIETORSHIP CORPORATION In a corporation, there are lots of owners. Each piece of ownership is represented by a share of stock. An owner is called a shareholder. If the corporation wants to distribute money to its shareholders, the board of directors has to declare that a dividend be paid. Dividends – Dividends are first declared and then paid. To declare a dividend you : Debit – Dividends Credit – Dividends Payable To pay a dividend you: Debit – Dividends Payable Credit - Cash In a proprietorship there is one owner. If the owner wants to receive money from the business, they take a draw. The draw is recorded in the owner’s Drawing account.