@Anonymous is correct.
@rverma001
Here's your Error:
"When an Invoice gets paid, I transfer the amount of that invoice to "Partner X Contributions"."
But it's Not. It's Income from the sale, and the Funds went to Bank. There is nothing else that can also happen.
"Here are my questions:
1. Is this correct? Or should I be putting that money into Retained Earnings? Or somewhere else?"
What you need to do next is run your P&L and your Balance Sheet. You run them both for This Fiscal Year to Date and you will see the same Net Income from the bottom of the P&L (the explanation of the Activities) = the same value is that one Net Income line seen in the Equity section of the Balance Sheet.
It's Already There. You don't Also make another entry.
"I assumed that the "Contributions" account is what I ultimately use to show how much a Partner earned"
How much personal funds they put Into the company.
"And this will ultimately show up on the Partner's K-1 for tax purposes"
Nope. The entire operation is what you are managing. The Entire Operation is managed by the details of the activities, resulting in Final Allocation on the K-1. Not every individual activity. From the 1065, that is Split and Allocated on the K-1. Not in the Bookkeeping. The bookkeeping belongs to the Entity. Not to three people.
"2. Once the money is received, we will turn around and transfer that money to the Parnter's personal Bank Account. So I assume that is taking an "Owners Draw". "
Yes, this is Check Expense, not paying for office supplies, but paying out Equity as Draw. You need to understand how to evaluate if the business Needs some of the funds or not, to continue to operate, of course. You cannot take it All out of the business, in most cases.
"And should I ensure that outflow shows up in "Partner X Distributions"?"
It will, because you Post it as that being the reason for the Expense. Not Rent, not Office Supplies. Partner Draw. From Equity.
"3. I also have our business bank account integrated into QB. However, when the transaction comes it, it counts it as income."
You control this. It isn't income if you have an unpaid Invoice. It needs to be Matched to the unpaid invoice.
"However, when I mark the Invoice as "Paid", it also counts it as income. So, its double counting my income. I click "Match" to avoid this issue, but when I do, it decrements the money out of "Partner X Distributions" "
Look at what you listed on your Invoices. That should be products and services that link to Income. These are your Sales. The Money is in Checking, and the Payment is customer AR against their unpaid invoice.
"So, so confused by all this.. If anyone has any idea, I would be most grateful. I has assumed this was pretty basic, but I've been fighting with it for many, many hours now."
You seem to be forgetting about "reasons." The Reason funds move around, such as Sales to Customers is income + perhaps sales tax liability. Funds out are expenses for what you just bought or paid for, such as Rent or Office Supplies or Partner Draw. Funds In from Partners are their own funds = Equity contribution.
And after your 1065 is prepared, there will be year end entries to make, typically. Then, you see the same info as the Tax form, and you can Allocate to each partner.
Retained earnings <== on the first date of the new year, this shows in the Balance Sheet for how the prior year Net income ended + all prior years, and on the balance sheet for the year end, you see Net Income. Take the Total Retained Earnings from the Bal Sheet report as of the first date of the new year, and Zero it out, like this.
Partner 'A' Equity <== total from RE, Contribution and Draw, as the Net needed to make each 0
- Partner X Contributions (Subaccount) <== zero out to the Parent account
- Partner X Distributions (Subaccount) <== zero out to the Parent account
RE should also be allocated to each Parent level Equity for each partner, and that should match the K-1 reporting.
Now the New Year starts with 0 draw, 0 contribution, 0 RE.
