Capital Accounts Assistance

1

Hello everybody. I need some clarity from those who maintain partnership capital accounts.

My business is made up of 4 partners and the profit sharing framework is based on a job by job basis. This means that with each job, the amount to be retained is calculated and the balance shared equally amongst ourselves. In all cases, the partners opt to withdraw their earned profits.

Am just a little confused on how to categorize these transactions. Should I do a spend money from a cash account and allocate it to a partners share of profit subaccount and then use a journal to credit retained earnings and debit drawings to show the money has been withdrawn. Or should i simply do a spend money and allocate it to a partner’s drawings subaccount? The latter will mean the share of profit subaccount will be left empty and yet there has been profit allocated, just that it has been withdrawn by the partner.

I would really, really appreciate your help. I have tried reading and while i do understand the work of each subaccount in theory, practice seems quite humbling and am afraid i could be doing it all wrong. Thanks in advance for your kind assistance.

2

  1. Do a Journal to transfer the profit share from the Retained Earnings account to the partners Share of Profits subaccount - Debit Retained Earnings & credit Share of Profits.

  2. Do a Spend Money and use partners Drawings sub-account

3

Thanks a lot for your feedback @Brucanna. Indeed this simplifies matters. So share of profits is merely allocated - only do a spend money when a partner is drawing? So in this example, the net balance at anytime will always be funds contributed + share of profits - drawings, is this right? Thanks again.

4

Sounds good