Accounting transaction for liquidating partnership
Second, the new partner could invest in the partnership resulting in an increase in the number of partners.The partnership accounts for these changes in partners differently. The capital balances of an existing partnership are: If MJM decides to retire and the partners agree to have TLM buy out MJM's partnership interest, the partnership's accounting records must simply reflect the change of ownership.
Capital balances, ,000 0,000 0,000 December 31, 20X0 The 0,000 capital balance for the partnership at December 31, 20X0 would be the amount reported as owners’ equity in The Midland Connection’s balance sheet as of December 31, 20X0.
TLM's capital account would be credited for ,000 in this case.
The ,000 difference between his initial capital balance of ,000 and his cash investment of ,000 must be deducted from the existing partners' capital account balances according to their sharing of gains and losses.
MJM's capital account balance would increase ,500 and EAM's capital account balance would increase ,000.
The entry would look like: If an existing partner wishes to retire or withdraw from the partnership, the partner may be bought out by an existing partner or may receive assets from the partnership.
This difference may increase the existing partners' capital account balances (a bonus to existing partners) or be deducted from the existing partners' capital account balances (a bonus to the new partner).