What is the correct way to close the books at year end for a partnership. Should each partner have an equity account? Not sure what je to make to allocate earnings

Welcome to the Community, 

I'm here to share insights regarding your inquiries in closing your books for a partnership in QuickBooks Online (QBO).

In QBO, closing your books for the year prevents unwanted charges before filing your taxes. This way, it'll secure your books on any changes in your accounting data before the closing date. An important step is to adhere to your yearly financial data and to ensure accidental changes that could affect your financial reports. 

Furthermore, closing your books at the end of the year with a partnership depends on how you set up your partner in QBO. If you've set up your partner as a vendor, you have to set them up as an owner or partner equity account. This way, you can see the investments by your partner and draw from your business. If you’re the sole owner, you need to set up just one equity account.

1. Go to the Gear icon, then select Chart of Accounts.
2. Click New.
3. From the Account Type ▼ dropdown, choose Equity.
4. From the Detail Type ▼ dropdown, pick Owner's Equity or Partner's Equity depending on your situation.
5. Once done, click on Save and Close.

You can refer to this article to know more about setting up the equity account: Add an owner or partner to your books in QuickBooks Online.

Moreover, in allocating earnings and creating a Journal entry in your account, I recommend reaching out to your accountant to be guided. 

If you don't have an accountant, I can help you find one. Feel free to visit this page to find an accountant for your business: Find a QuickBooks ProAdvisor.

Let me know if you have additional questions about closing your books in QBO by commenting below. I'll answer them as soon as possible.

@kquandt-oxbowind 

Close Retained Earnings (RE) to each partner's capital account with a journal entry.  Let's say the partnership's net income at year-end was $50,000 and two partners are 50/50.  The journal entry is a debit to RE for $50K, a credit to Partner 1's capital account for $25K, and a credit to Partner 2's capital account for $25K. 

I came across this thread through search as I had the same question - an issue I am having is that Net Income on 12/31 doesn't seem to convert to Retained Earnings until 1/1, whereas I would like to allocate the PNL for the year across the partners as of 12/31. If you debit RE to credit Partner Equity accounts on 12/31, you will end up with negative RE as of year-end. Any guidance on how to get partner capital accounts correctly allocated their share of PNL as of 12/31? We need to allocate PNL to partners as of year-end, not Jan 1, for tax.

@wenglish10 

"If you debit RE to credit Partner Equity accounts on 12/31, you will end up with negative RE as of year-end. Any guidance on how to get partner capital accounts correctly allocated their share of PNL as of 12/31? We need to allocate PNL to partners as of year-end, not Jan 1, for tax."

Technically, from an accounting perspective, current year net income is part of retained earnings (RE).  Once you have made the closing adjustments to the partner capital accounts on 12-31, as long as current year net income + RE isn't negative, all's well.