I opened a capital account in manager and X invested $3000. X has been promised 20% return. How do you account for the $600 return? Should it just go under interest expense? I was under the impression such transaction should be recorded in the share of profits sub-account at first, but that doesn’t seem right.
It is not interest if it was a capital investment and X is a partner. It would be a return of investment and should be handled through the drawing subaccount after transferring retained earnings to capital first as a distribution of profit in accordance with the partnership agreement.
But if X is entitled to 20% regardless of earnings, then it is more like interest on a loan. In that case, the original 3000 should have been posted to a loan liability account. And the 600 would be interest, posted to an interest expense account.