If the limited liability company you have an ownership interest in has other members, the Internal Revenue Service taxes the business like a partnership. As a result of this partnership treatment, LLC members must continuously track the balance of their capital accounts in the same way partners do. Your capital account balance reflects the equity, or value, of your interest in the LLC, which you can keep track of by recording all transactions that increase and decrease its balance.

Initial Capital Account Balance

Tracking the capital account of an LLC member starts with the money and property she initially contributes to the business in exchange for an ownership interest. A new or founding member's initial capital account balance is equal to the fair market value of all property contributed to the business, minus any outstanding debts for which the LLC assumes responsibility, plus the amount of any cash contribution. To illustrate, suppose you put $10,000 cash and a piece of equipment worth $20,000 on which you still owe $5,000. If the LLC assumes the $5,000 loan, your capital account balance is $25,000 ($10,000 + 20,000 - 5,000).

Increases to Member Capital Accounts

Each LLC member is allocated a percentage -- which is usually relative to her property and cash contributions -- of business profits and gains. At the time an LLC records a profit or gain on its books, member capital accounts increase. For example, if your LLC reports a $100,000 profit for the year and your membership interest entitles you to 10 percent of it, your capital account balance increases by $10,000 to $35,000. And if you ever make additional contributions of cash or property, you'll also record those transactions as increases to your capital account in the same way as your initial contribution to the LLC.

Decreases to Member Capital Accounts

Just as profits and gains increase your capital account balance, business losses and expenses -- regardless of whether they're deductible or not -- decrease the balance. All distributions of money and property that the LLC makes to you must also be tracked, since they decrease your capital account balance. If, for example, the LLC distributes half of that $10,000 profit, your capital account balance decreases by $5,000 to $30,000. This $30,000 reflects the amount you're entitled to receive from the LLC if it were to liquidate, though realistically, LLC creditors are paid before liquidating distributions are made to members -- which means it's possible to receive less than your capital account balance.

Negative Capital Account Balances

Depending on the type of business your LLC engages in, your capital account balance may change daily and can even go negative. Negative capital accounts commonly result when your share of LLC losses and expenses total more than your capital account balance. Although it depends on the terms of your LLC operating agreement, members generally have an obligation to bring their capital account balances to at least zero, which could require making additional contributions. Suppose the LLC suffers a substantial loss because it writes off $400,000 of customer invoices as uncollectable. If you're allocated 10 percent, your capital account balance decreases $40,000 from $30,000 to -10,000.