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MDC1984
August 6, 2022
Question

Partnership, Equity, Drawings

  • August 6, 2022
  • 1 reply
  • 0 views

Hi, I am looking for some advice in setting up equity accounts and recording drawings made from them.

The business is a simple partnership and we intend to draw a monthly sum as wages. One partner has made an initial investment, but the other starts with zero equity. Profits to be shared 50:50. This monthly sum is not intended to reduce Partner 1's equity, further drawings to reduce that will be made when funds allow.

 

Following one of the guides, in the Chart of Accounts I set up

Partner's Equity with sub accounts Partner's Equity - Partner 1 and Partner 2.

How do I record the monthly drawings, especially given Partner 2 technically starts at zero?
Do I need to make a journal entry, crediting some profit to the equity accounts that I can then draw on (and record as an 'expense'? If so, which "account" gets debited? It is my understanding that retained funds are allocated for this purpose at year end, but what about mid-year?

 

In addition to the above question, when I set up the account in QBO, the following "owner equity" accounts were automatically set up for each partner (I can't seem to change these to "partner equity", if I need to, but I can rename "Partner 1/2" to our names for ease of use )

Capital account brought forward; Capital introduced; withdrawn; Current account brought forward; Drawings; Interest; Salary; Share of Profit.

Do I need these accounts or can I mark them inactive?

 

Huge thanks in advance.

1 reply

C
CharleneMaeF
August 6, 2022

Thanks for being so detailed about your concern, MDC1984.

 

It's our priority to ensure everything is tracked correctly in QuickBooks Online.

 

Since setting up and selecting the correct account requires an expert's advice, I'd recommend consulting an accountant. They'll be able to provide to correct way to handle this. If you don't have one, you can use our Find-an-Accountant tool to look for an expert near you.

 

With regard to the accounts, QuickBooks creates certain accounts as default. The Owner's Equity is one example. We can edit its name, but we're unable to inactivate it. Here's how:

 

  1. Go to the Gear icon and then select Chart of Accounts.
  2. Find Owner's Equity in the list.
  3. In the Action column, select the drop-down menu. 
  4. Select Edit.
  5. Update the Name to Partner Equity.
  6. Once done, click on Save and Close.

 

You can remove the other accounts you no longer use to avoid confusion.

 

I've also added an article that'll help you review your QuickBooks accounts to ensure they match your bank and credit card statements: Reconcile Workflow in QuickBooks.

 

Please keep us posted if you need help managing your accounts in QuickBooks. It's always my pleasure to assist you.

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