Hello, there is a problem with (Retaining earnings, Capital account and account Receivable)
First I share the profit (retained earnings) to capitals and (cleared retained earnings) after entered a new person to the business so a new capital is entered, after a bad debt is happened from account receivable who’s profit has been shared to previous capital accounts, now how to handle the lose happened by bad debt happened in account receivable for the new member of the business, thanks
It is difficult to tell in what order the events have happened from what you have written.
It would be easier to understand if the events were detailed in a list in date order.
Without knowing this detail it is difficult to suggest a solution
I suspect this is not an issue concerning Manager. I suspect there is a question that pertains to your new partner or business associate.
let me Explain
on 10/04/2021 I cleared the retained Earnings and added as share of profit to capital Accounts. on 20/04/2021 I a new person joined the business and entered deposit to a new capital account. on 25/04/2021 bad debt happened from the account receivable in previous period which the deals was made before the new person join the boniness and its profits shared to previous capitals too, now how to distribute the lose form previous periods . because it apply to new business member capital too .
If the loss from the bad debt is to be shared by all partners (including the new partner) all that needs to be done is to write-off the bad debt to Bad debts account in the P&L. This entry will reduce profit, and so reduce retained earnings. At the end of the reporting period allot retained earnings balance to the partners’ capital accounts as usual.
See here for procedure to write-off bad debt Write off bad debts | Manager
If the bad debt is not to be shared by the new partner that will require a different approach.
yes that is exactly you mentioned in the last line , the new partner was not in business while the profit and retained earnings shared . and now the bad debt happened from that shared profit .
Are you saying that the bad debt is not to be shared by the new partner?
Yes Exactly . because he is not responsible for the deals while he was not in the business .
This would be the way to handle it then:
Let’s say the bad debt is $1,000. and three partners, P1, P2 and P3 (the new partner)
Write-off the bad debt as per the guide: Write off bad debts | Manager
This will reduce (DR) retained earnings ( as explained in my previous post)
Create a journal entry as follows:
DR Capital account P1 $500
DR Capital account P2 $500
CR Retained earnings $1,000
The result is that retained earnings will be debited $1,000 by doing the Write off and retained earnings will be credited $1,000 by the journal, and the existing partners’ capital is reduced but the new partner’s capital is not affected.
Thank you bro, so that will be manually set to distribute the Retained Earnings among partners , as we choose , I was looking for manager that can handle it , because the there is dates deference between the invoice (of bad debt) issued and new capital invested , so there is no way that manager define it automatically to handle it ?
Those sequence of events would only occur in rare circumstances, so no accounting program is likely to cater for such circumstances automatically.
Yes Thank You , but it need critical focus on invoice date when the bad debt happened on it , to clearly Distributes its lose to the responsible partners . and it also effect the credit notes too .
Distribution of profits and losses are not matters that can be handled automatically by any accounting program in a situation like this. They are determined by the partnership agreement or mutual consensus. The decision is implemented with journal entries.
Thank you