Discussion:Partnership Accounting Question
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Discussion Forum Index --> Accounting Questions --> Partnership Accounting Question
BooksForYou (talk|edits) said: | 8 October 2009 |
| I have a client who is a law firm with 4 partners. Right now they are placing the distributions to them in "other expense" on the P&L. I don't think that is right. Shouldn't it be in the equity section under partner distributions? Also, they calculate each month how much the partner is owed based on receipts. They also owe the partners for past months they haven't paid. None of this is on the financial statements. How do I go about getting all this information on the financials? Example: owe 7,000 this month + 20,000 previous months - payment of 5,000 this month= 22,000 still owed to partner. Thanks for your help! | |
| 8 October 2009 | |
| You need a copy of the partnership agreement. If these payments are calculated based on elements of a compensation agreement, they are guaranteed payments and recorded as an operating expense. Their K-1 form has a separate line for reporting such payments. They should then share a percentage of bottom line profit or loss after deduction of this separate compensation - read the partnership agreement to confirm. Distributions related to those shares of profit or loss would be recorded in the equity section as draws.
The above paragraph assumes you are reporting on the cash basis. Using the cash basis you would not make entries to show the unpaid amount of that compensation owed, it would simply be tracked internally as you mentioned. | |
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