If you’re a partnership or trust, you can choose how to distribute the profit or loss to each partner or beneficiary.
First make sure you’ve set up all the required equity accounts, and then you can specify the distribution percentages for each person.Create equity accounts for each person
For each person you’re distributing profit and loss to, ensure you have all the necessary accounts in the Equity section of the Accounts List. Here’s an example of accounts set up for a partnership:
3-1000 John Smith
3-1010 JS - Retained Earnings
3-1015 JS - Capital Contributions
3-1020 JS - Current Earnings
3-1025 JS - Drawings
3-2000 Rachael Smith
3-2010 RS - Retained Earnings
3-2015 RS - Capital Contributions
3-2020 RS - Current Earnings
3-2025 RS - Drawings
|title||To set up equity accounts for profit and loss distribution|
To set up equity accounts for profit and loss distribution
- Open the Accounts List window (Lists > Accounts) and click the Equity tab.
- If you haven't already, create equity accounts for each person you'll be distributing profit or loss to. As a minimum, create:
- A header account: This serves as a group header for the person (see 3-1000 in the example above).
- A Retained Earnings detail account: This is the running balance of the person’s share of profits or losses from previous financial years (see 3-1010 in the example above).
- A Current Earnings detail account: This is the person’s share of the current year’s profit or loss (see 3-1020 in the example above).
Depending on your entity type, you might also need other accounts, for example to handle capital contributions and drawings.
Do I need to include the person’s name in every account name? For easy recognition in reports, you should include the person’s name, initials or another identifier in the account names. The account name can have up to 30 characters.
Can I use the default Retained Earnings (3-8000) and Current Earnings (3-9000) accounts? No, you can’t use them as they’re system accounts, and will show a $0 balance. You need to create new accounts for each partner or beneficiary.
|title||To set up profit and loss distribution|
To set up profit and loss distribution
- Open the Profit/Loss Distribution window (Setup > Profit/Loss Distribution).
- Select the type of entity you have.
- For each person, select the header, Current Earnings and Retained Earnings accounts you set up for them earlier.
- In the Amount column, enter the percentage distribution that applies to each person. When you’re finished entering each person’s distribution percentage, the total for this column must be 100%.
- Click OK.
How is the profit or loss distributed to each person? The Current Earnings accounts in the Accounts List window and your reports will always show each person’s share of the current year’s profits or losses. When you close the financial year, those amounts will be transferred to each person’s Retained Earnings account.
What if I change the percentages, or add and remove people throughout the year? No problem. The amounts allocated to the Current Earnings accounts will recalculate automatically.