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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
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Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Accounting in partnership. What is the best (easiest) way

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Accounting in partnership.
What is the best (easiest) way to account for partner's profits in a partnership?
For example, The Company is a partnership and has 2 partners: Partner A (10%) and Partner B (90%). In 2012 The Company made a profit of $100,000.
So it issued two K-1 forms, showing $10,000 profit for Parntner A and $90,000 for Partner B.

None of them took any distributions from The Company so far.

Should The Company pay each partner his share once a year, when this number is XXXXX? (in this example pay now $10,000 to Parntner A and $90,000 to Partner B, for 2012 and enter in company's books as "Member Draw"?)
Or can The Company make distributions in advance, roughly equal to expected profits, throughout the year? Or is it easier to just make loans to partners throughout the year, and then once the profit is calculated - apply the loans against the dividend?
Are there any rules or recommendations on this?

MyVirtualCPA :

Thank you for your question, and thanks for using

MyVirtualCPA :

You could advance the partners their profits throughout the year, and at the end of the year if there are any excess withdrawals reclassify them as loans to the partner

MyVirtualCPA :

This would be simpler than making the loans throughout the year - you will only create a loan if it is needed.

MyVirtualCPA :

You also don't have to distribute the profit to the partner - their allocated profit would go to their basis in the company

MyVirtualCPA :

This would be my recommendation on how to handle this - if the partners want draws equal to their profits. It's not required, though

MyVirtualCPA :

However, the ultimately simplest thing to do is pay out once per year - but that's not required, either


Thank you. XXXXX advance partners thoughout the year- are there any requirements or recommendations that I advance parnters proportionally to their share of the company? Or can I advance one partner throughout the year and pay the second partner just once a year?

Hello, Anton. I'm sorry that I have switched modes on you, but I saw that you had a reply and I could not see it in live chat. I can see it now, though.

You can advance one partner throughout the year, and one at the end of the year, so long as the total of their withdrawals are proportionate to their ownership percentages. I hope this makes sense.

If you would, please rate my response as "excellent" so that I may receive credit for assisting you today.
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