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arkvalleyinfo
October 16, 2018
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What is the proper process in QB to close out these accounts at the end of the year?

  • October 16, 2018
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I have a question regarding owners draw and retained earnings.

 

We are a partnership with 3 partners. Our managing partner is the only partner with equity in the firm at this time. I was brought on mid-way through 2015 so this is my first year end to close out.

 

First question is regarding the draw accounts. These accounts have never been closed out at the end of the year. So they just have a running negative total from the firms inception.

 

What is the proper process in QB to close out these accounts at the end of the year?

 

Being that we are setup as a partnership what should I be doing with retained earnings at the end of the year? I do see that QB has automatically made our journal entry of net income into retained earnings. Should retained earnings then be distributed to the partner equity accounts?

 

Any help is appreciated.

Best answer by Rustler

I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

End of the year you do journal entries, for each partner

debit investment, credit equity for the total in investment
debit equity, credit drawing for the total in drawing

then one more journal entry

debit retained earnings for the full amount
credit partner 1 equity for his portion
credit partner 2 equity for his portion
etc etc

1 reply

Rustler
RustlerAnswer
October 16, 2018

I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

End of the year you do journal entries, for each partner

debit investment, credit equity for the total in investment
debit equity, credit drawing for the total in drawing

then one more journal entry

debit retained earnings for the full amount
credit partner 1 equity for his portion
credit partner 2 equity for his portion
etc etc

    A
    arkvalleyinfoAuthor
    October 16, 2018
    When you then do a check the following year to the respective partners, do you DR the partner distribution subaccount or go straight to the partner parent equity account?  Thanks!
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