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

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.

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Best answer 10-15-2018

Accepted Solutions
Established Community Backer ***

I recommend you have the following for owner/partner equi...

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

View solution in original post

6 Comments
Established Community Backer ***

I recommend you have the following for owner/partner equi...

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

View solution in original post

Not applicable

When you then do a check the following year to the respec...

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!
Established Community Backer ***

I prefer the distribution/drawing account, but either way...

I prefer the distribution/drawing account, but either way is fine.
Using the drawing account, allows you to report by year on that account easier than if everything posts to the main equity account
Community Contributor *

Re: I prefer the distribution/drawing account, but either way...

@Rustler what are your thoughts on doing this, specifically the closing of net income/retained earnings to partner's equity accounts with respect to cash basis and accrual basis. That # will be different and you can't make an entry for both. I certainly prefer accrual basis but sometimes it's easier to see it on the cash basis, especially as that's what my clients usually file tax returns on.

Established Community Backer ***

Re: I prefer the distribution/drawing account, but either way...


@UMDJeremy wrote:

@Rustler what are your thoughts on doing this, specifically the closing of net income/retained earnings to partner's equity accounts with respect to cash basis and accrual basis. That # will be different and you can't make an entry for both. I certainly prefer accrual basis but sometimes it's easier to see it on the cash basis, especially as that's what my clients usually file tax returns on.


You have no choice, QB is accrual accounting

it only reports on cash basis

Not applicable

Re: I recommend you have the following for owner/partner equi...

When you create the Journal entry you're just bringing the balance back to zero for the equity account at the end of the year?

 

I'm only asking because read to setup a 2017 account and then another for 2018 for equity, but now in 2019 the 2017 account still shows balance in my balance sheet.

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