Distribution of income to partners

"The management company distribute the income to the LLCs partners (50/50). How do I register the deposit to the LLC partner?"

I think you are asking about a Subsidiary, or Wholly-owned or Sub-entity relationship. In that case, the initial entity earned Income, the Payout is Distribution or Draw from Equity, and the Deposit to the other LLC is an Equity deposit.

The other LLC will get a full report from tax preparation for income and expense. Right now, all you have is some Banking.

You should always review this with your CPA, of course. We are doing our best to understand what you asked, without access to any further details.

I have the scenario explained above in a three partners LLC.

Is it correct to transfer the RE to a sub bank (capital) accounts for each member and at distribution time do a journal entry debit to the account and credit to the partners?

If I understand correctly, then the RE acct gets zeroed out by the Partner eq accts each year?

Capital Accounts are never Bank or Subbank. That is Equity. Retained Earnings is Equity. If you want to allocate RE to individual member or partner equity accounts, that still is equity. Nothing moves to Bank.

Sorry, not to belabor the point but, I used a journal entry to allocate the 2018 retained earnings (-$57,000.00) to the partners based on their ownership %.

That journal entry decreased each partners equity acct and zeroed  the retained earnings acct for 2018.

This seemed correct to me, but QB cautioned me (a pop up dialog box) not to be adjusting the RE acct, so that confused me. Thank you, again

Best,

Brian Gerhart 

You see this on the Year End financial reports: "I used a journal entry to allocate the 2018 retained earnings (-$57,000.00) to the partners based on their ownership %."

Along with Net Income. The value you want to reallocate is the RE for the first date of the new year. Not the year end date.

This is a Yellow Triangle = Warning, not Red X = Error: "This seemed correct to me, but QB cautioned me (a pop up dialog box) not to be adjusting the RE acct, so that confused me."

It is making sure you Really intend to do what you are doing. Yes, you would do this for the first date of the new fiscal year, but not until all Tax Prep year end entries are also made, from the tax form (1065, 1120S) because until these are entered, you are not "done" with that year.

Example:

On Dec 31, I see Net income, Distributions, and Retained Earnings. On Jan 1, the Net income is now part of Retained earnings. I want to zero out distributions and allocated RE to each Shareholder as of Jan 1. But the tax return is not due until March 15, so you might not have your final year end values, on Jan 1.

Thank you so much for taking the extra time to explain fully. You're the Best!

Brian Gerhart

I know I am late to this discussion but I assume that what gets rolled into the equity account(s) is book income?  Are any adjustments made to the equity(capital) accounts for tax differences? 

Thanks

It is always possible there will be adjustments as a result of preparing your income tax return since

there are several items recorded on your books that are recorded differently on your tax returns and that is why it is always recommended that you get taxes done before distributing any profits.

I am doing the books for a one of the partners of a partnership.  He is maintaining his own set of books.  He is receiving a draw from the partnership set of books.  How should he record this 'income' in his set of books.

Hey there, @mdmccoy06.

Thanks for joining this conversation. Allow me to step in and share some information about recording an owner's draw in QuickBooks.

To start off, your client needs to set up an owner's equity account and write a check from it. The steps do this may differ depending on the QB version he is using.

You can provide these articles to him for the detailed steps:

• For QuickBooks Desktop (QBDT): Set up and process an owner's draw account.
• For QuickBooks Online (QBO): Set up and pay an owner's draw.

That should help him record the draw he received. Please post again or leave a comment below if you need anything else. I'll be happy to answer them. Cheering you to continued success.

I understand the payment of the draw by the company but what I am seeing in his set of books is the receipt of the draw to his own business account - shouldn’t that be handled differently on his end?

Now you are referring to a different entity, so would have to re-start the Q&A with same question:

What type of entity are "his books?"

Thank you for your reply, it was very helpful.  I set it up as you suggested, and recorded the journal entries.  The retained earnings was reallocated to equity for each partner, and then I debited their equity account and credited their distribution account in the amount to be distributed.  After cutting the profit distribution checks, what journal entry do I use to reduce operating cash by the check amount?  As of now my Operating Cash is out of balance by the amount of the profit checks that were cashed.

Thanks!

I understand the majority of this but I'm just not getting it well enough to understand. I'll try to explain and hope somebody can help.

At the end of the year the company has made a net profit (hopefully), on the first day of the new fiscal year QB moves that Net profit to the retained earnings account. Does this happen automatically?

Then you do a journal entry to distribute net profit to the partners

debit RE for the full amount in the account
credit partner 1 equity for 50% Is this one of the 3 accounts that are under the partner equity account? (Do all 3 accounts there get summed together? Equity, Draw, Investment?)
credit partner 2 equity for 50%

you close the drawing and investment as well as the retained earnings account to partner equity with journal entries

debit investment, credit equity debit investment for the partner and credit equity of the company or the partner?

debit equity, credit drawing for each partner? or the company equity account?

debit RE, credit equity for the partner share RE is a company account

See my confusion? I'm not sure which accounts to debit and which to credit.

I've attached my balance sheet for the end of 18 and 19 if somebody cares to let me know what to modify and what journal entries to do for end of year 18 and end of year 19.

After this I've got the 1 company  (LLC-S) that owns this partnership and my other company that's much easier as a LLC-C. Rather pay taxes than deal with all this crap.

I got it!!

Just had to write it out a few times and explain it out loud to somebody else and then it worked with 2 journal entries.

It was all accurate, just not book-kept yet. Our 2nd year in business and didn't know how to close out the first year and the math was easy enough to see but just didn't have it in my mind right.

Now for the harder part. Distributions from the 1065 went to an 1120S which paid wages.

I think I got this.

Don't know how many times I've read the same few posts over and over again to figure this out.

Thanks to everybody that posts.

How would you do this for an LLC that is a taxed as an S-Corp?

This answer makes perfect sense with respect to the partner's capital account.  In our case, we have an LLC loss (Form 1065).  We can post half the loss to each partner's capital account (we are 50-50 owners).  However, in doing so, Quickbooks changes our bank account information to reflect a debit in the amount of the loss.  Our bank accounts should not be debited since the capital account entries are not actually expenses.  How do I make entries in my Quickbooks Desktop 2019 to reduce each partner's capital accounts but not decrease the bank account information?  Thank you.

Hi Rustle, if it is Quarterly dividend paid to the LLC partners is it classified the same way as a distribution. A Check was mailed to all the partners. thank you

Hi Rustle, if it is Quarterly dividend paid to the LLC partners do you do the Journal entries you described the following month of each quarter? 

Retained earnings dr., dividend payable cr. than dividend payable dr. bank cr.