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emmaejc23
May 28, 2020
Question

Distributing a loss between partners

  • May 28, 2020
  • 1 reply
  • 0 views

My business is a partnership with a 50/50 profit share. Last year (first year trading) we made a loss of 4165.33 so we now have a retained earnings balance of -4165.33.

I'm trying to create a journal to distribute this loss between both partners equity accounts but I can't get my head around which accounts to credit and debit.

Any help would be much appreciated!

1 reply

ScottSpringer
ScottSpringer
September 10, 2020

For each partner account, have subaccounts: Investment, Draws, Earnings. Also create an equity account named "Retained Earnings Distributed to Partners". This is essentially a contra-account for Retained Earnings.

 

Then make a JE as of the prior year-end:

Partner 1 Earnings $2,082.67 debit

Partner 2 Earnings $2,082.66 debit

Retained Earnings Distributed to Partners $4,165.33 credit

 

When you re-run your balance sheet, you will still see Retained Earnings with a negative balance of $4,165.33, but you'll also see a positive balance of $4,165.33 in Retained Earnings Distributed to Partners. So these net to zero.

 

You'll also see 50% of the $4,165.33 allocated to each partner.

 

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