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Thread: Understanding basic partnership book keeping and accounting

  1. #1

    Default Understanding basic partnership book keeping and accounting

    So I'm a little stuck on understanding something and hope someone here can help. In December, myself and a partner started a new business as a 2 member LLC. We're a partnership for taxation. This all happened towards the end of the year so we have some very low numbers and the below is just an example but:
    I've setup two equity accounts for each of us. Member 1 Capital and Member 1 draw,...
    Our initial expenses were by personal funds, so I've created those expenses as debits to the expense accounts and credits to our capital accounts.


    Now we're at closing for the year... (this is also a practical exercise for myself)
    So we have (fake numbers) Expense accounts totaling $312.96 and two owner's accounts at $40 and $272.96 totaling $312.96. One of us paid more out than the others... again, fake numbers though.
    When closing out I Debited income summary for the expenses and credit the expense accounts resulting in a negative -312.96 in income summary and $0 balancing all expense accounts.


    Now is where I'm confused....
    Per my previous reading, when their is a net gain, I'd debit the income summary account, and split it between the partners in accordance with the operating agreement(50/50 in this example). In this case we have a negative, so do I credit the income summary and debit the partners? what happens to their capital contributions then?

    As an experiment I credited income summary and split the debits to 156.48 each to both partner's capital accounts. Since they each had a credit balance of different amounts, (vastly different in this case) that resulted in a positive balance of 116.48 in owner 1's account and -116.48 in owner two's account. I think whats making this difficult is the existing balances in the capital accounts and maybe I'm missing something. I really want to understand this though...



    Thanks for any of your thoughts

  2. #2

    Default

    Thanks for this article it is quite helpful. For accounts and bookkeeping I used QuickBooks 2020 desktop. It is very easy to use and helps me to manage my payrolls. But recently I am facing this QuickBooks error H202. Can you help me to troubleshoot it?
    Thanks in advance.
    Regards,
    Lewis

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