Owner Contribution or Owner Draw account question

[Account Closed]

Thanks for taking the time to review in advance. 

I just wanted to get some clarity on proper protocol. On a partnership LLC, when you do a distribution , are you offsetting account for your owner contribution , ( so what they have into it is reduced? ) . Or do you do a distribution ?

Im not sure if there is a net effect of difference for accounting purposes. But moreso if there is a different level of contributions and you want to reduce one partners contribution before you start distributing equally . 

Also if there are multiple partners, do you track the owner distribution accounts differently? Like each person has their own name/account so you can track individual distributions as opposed to collective distributions? 

Thank you !

[Lance Lvovsky]

I always recommend clients have separate partners' capital accounts on the balance sheet. Every partner in an LLC taxed as a partnership should be tracking capital accounts on the financials. In addition, tax basis capital along with partners' outside basis should be tracked annually (generally done by the CPA handling the partnership tax returns).

[Lance Lvovsky]

I always recommend clients have separate partners' capital accounts on the balance sheet. Every partner in an LLC taxed as a partnership should be tracking capital accounts on the financials. In addition, tax basis capital along with partners' outside basis should be tracked annually (generally done by the CPA handling the partnership tax returns).

[Account Closed]

@Lance Lvovsky thank you , this was my thought, i had separate contribution accounts but not separate distribution accounts. Do you have any input regarding outflow reducing the partners capital contribution account , or showing as a respective owner distribution account. 

I know your time is valuable being an accountant on April 15th :) I know you are not my accountant , i was kind of curious if there was a standard or done differently based on deal structure. 

[Dan V.]

@Account Closed For partnership, it is recommended to have separate capital account for each partner and each capital account is further split into sub-accounts for contributions (money in) and distributions (money out). 

[Account Closed]

@Dan V. Ahh that makes sense, i have them as separate equity accounts, with their respective sub accounts ( partner) .   So realistically, if you disburse funds , it ”doesn’t matter” if you place it for the contribution or distribution because the net effect is the same correct? 

[Dan V.]

@Account Closed If you have the partner's equity account as the main account then contribution and distribution account as sub-accounts, when you run balance sheet, you can easily see how much each has put in or taken out and roll up into the main account so you will also know how much is the equity balance for each partner. 

To take a step further, you can also add a 3rd sub-account for the income/loss allocation to capture the tax basis balance as Lance mentioned. But this may require assistance from your tax accountant to make sure it is captured correctly. Example below (60-40) partnership.

[Account Closed]

@Dan V. thanks !

[Gita Faust]

As you own your business, you know why you are contributing or withdrawing money. Allocate them ahead of time. Here are my 2 cents:

1. Loan account (Asset/Liability) for money that you're expected to be repaid by the business

2. Initial Investment to start your business (Equity)

3. Capital Contribution use the account when you make an additional investment during the course of business (Equity)

4. Distribution aka Guarantee payments are taxable (Equity)

5. Distribution Net income/loss (Equity) 

6. Draws/Distribution that does not belong in any of the above (Equity)

[Michael Plaks]

Can someone guess as to why the OP's account is closed?

It usually happens to either promoters or tire-kickers. But the OP seems to have a real business, almost 700 posts and even was a podcast guest. Then, a week after posting a legit question - account closed?