# General Business Category > Accounting Forum > [Question] Partnership Accounting in Pastel

## Mark Atkinson

Hi, this one is for the Pastel/TurboCASH gurus.

Basically our business is a partnership and we all know that partnerships have different accounting treatments compared to companies and sole props.  I'm struggling with grasping how to account for a partnership in Pastel/TurboCASH. (I'm trying to decide which system is best for me at the moment.)

The main thing I'm baffled about is the year end procedures. I think I understand them on paper:

1. Net Profit/Loss get's closed off to the Appropriation account.
2. A salary account for each partner is created at year end. The salaries are debited in the appropriation account, as well as the interest on capital. 
3. The remaining balance in the appropriation account is appropriated between the respective partners and credited (assuming a profit was made) to their current accounts. (Represents their share in the profits of the business). 

Now the problem comes in with the year end procedures in each of these programs. I just can't fathom how to make them work for a partnership. They both seem to do regular year ends where profits are closed off to Retained Earnings etc. 

Can anybody explain to me how I might go about accounting correctly for the partnership in one/both of these accounting packages? It's been a couple years since I studied partnership accounting so I am definitely a bit rusty.  :Confused:

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## Neville Bailey

Hi Mark,

It's also a long time since I looked at partnership accounting, and that was in the days of manual accounting!  :Big Grin: 

I suggest the following:

Rename the 5100/000 - Share Capital account to Capital AccountCreate a separate sub-account for each partner under the Capital AccountRename the 4850/000 - Dividends Declared/Paid account to Appropriation AccountPrior to running the year-end, process a general journal, debiting the Appropriation Account with the net profit and crediting the partners' Capital sub-accounts with their respective profit splitsYour income statement will now reflect a zero profit/lossRun the year-end - each of the income and expenditure accounts, including the Appropriation Account, will be zero'd and the net amount (zero) will be allocated to 5200/000 - Retained Income.
Hope this helps.

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Mark Atkinson (07-Feb-11)

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## Mark Atkinson

Thanks Neville.

So basically, I need to do a "manual" year end where I zero all income and expense accounts to the created appropriation account? 

Also, in partnership accounting partners have both capital accounts and current accounts. Everything goes through the current accounts (drawings included) and only capital contributions go through the capital account. Would this impact your suggestion at all? Can I just create extra current accounts?

The only problem I see is that the income statement will reflect a zero profit/loss. I need the financial statements to show accurate figures at year end. I suppose I could just take the pre-year end income statement?

How would I tackle the issue of Salaries to partners? Basically when partners take salaries throughout the year, it is debited from their current accounts as Drawings. At year end their salaries are actually processed and are credited to their current accounts. The problem lies in the fact that the partners' salary accounts are theoretically only created at year end. 

Partnership accounting is such a mission!  :Confused:

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## Neville Bailey

> So basically, I need to do a "manual" year end where I zero all income and expense accounts to the created appropriation account?


Not quite - you don't zero each income and expenditure account individually. You debit the appropriation account with a single value, being the net profit, and debit the same value to the capital accounts, split according to the partners' profit shares.

As a simple example, this is what your income statement will look like after the journal:

Sales ............................. 100,000
Less: expenses
Bank charges ..... 200
Repairs ........... 2,000
Insurance .......... 700 ...... 2,900Net profit before approp ..... 97,100
Less: Appropriation .......... -97,100
Net profit after approp .......   Nil     



> Also, in partnership accounting partners have both capital accounts and current accounts. Everything goes through the current accounts (drawings included) and only capital contributions go through the capital account. Would this impact your suggestion at all? Can I just create extra current accounts?


Yes, I would simply create another main account in the balance sheet called Current Accounts, with a sub-account for each partner.




> The only problem I see is that the income statement will reflect a zero profit/loss. I need the financial statements to show accurate figures at year end. I suppose I could just take the pre-year end income statement?


Although the income statement will reflect a zero profit/loss after appropriation, you will still see the net profit/loss before appropriation. See my example above.




> How would I tackle the issue of Salaries to partners? Basically when partners take salaries throughout the year, it is debited from their current accounts as Drawings. At year end their salaries are actually processed and are credited to their current accounts. The problem lies in the fact that the partners' salary accounts are theoretically only created at year end.


In other words, during the course of the year, you would debit their current accounts (and credit Bank) and at year-end you would debit Salaries in the income statement and credit their current accounts. I'm not sure why you can't debit Salaries and credit Bank immediately during the course of the year?

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## Neville Bailey

Yuk, I couldn't get the alignment in my example looking nice, but I think you get the picture...

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## Dave A

> Yuk, I couldn't get the alignment in my example looking nice


Please pardon the tinkering in your post, Neville. Just trying to help. If you don't like it I'll undo it.

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Neville Bailey (10-Feb-11)

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## Neville Bailey

> Please pardon the tinkering in your post, Neville. Just trying to help. If you don't like it I'll undo it.


Thanks Dave - looks much better!

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## Mark Atkinson

> Not quite - you don't zero each income and expenditure account individually. You debit the appropriation account with a single value, being the net profit, and debit the same value to the capital accounts, split according to the partners' profit shares.
> 
> As a simple example, this is what your income statement will look like after the journal:
> 
> Sales ............................. 100,000
> Less: expenses
> Bank charges ..... 200
> Repairs ........... 2,000
> Insurance .......... 700 ...... 2,900Net profit before approp ..... 97,100
> ...


I'm not quite sure I fully understand. I'm trying to comprehend how it will all work in comparison with a manual partnership accounting system.

What type of account are you suggesting I make the Appropriation account? An expense? What I don't understand is that had it been the Dividends Paid account, it would not have affected the income statement, only the SoCIE. 

In order for the partnership accounting treatment to be correct the following would need to happen at year end:

1. Profit to Appropriation account. (You suggest debiting net profit and crediting appropriation, but there is no actual account for net profit. Your income and expenses only get closed off to Profit & Loss when the year end procedures are performed?)

2. Salaries + Interest on Capital (created at year end) are debited in the appropriation account to reduce the profit. The salaries account is then closed off to the partner's current account by debiting Salary: Partner A and crediting Current Account: Partner A. 

3. The remaining balance in the appropriation account is split between the partners and credited to their current accounts (assuming a profit was made).






> Although the income statement will reflect a zero profit/loss after appropriation, you will still see the net profit/loss before appropriation. See my example above.


This is where I don't understand how the Appropriation account features in the Income Statement. The Appropriation account is a year end transfer account, not an expense account. (Dividends paid is the same story, it features only in your SoCIE). 




> In other words, during the course of the year, you would debit their current accounts (and credit Bank) and at year-end you would debit Salaries in the income statement and credit their current accounts. I'm not sure why you can't debit Salaries and credit Bank immediately during the course of the year?


Not quite. Partners' salaries have no effect on the Income Statement whatsoever. They are seen as drawings of equity (from their current accounts), hence why salaries are taken as drawings throughout the year. 

The reason for this is that partners are taxed on their share of the net profit of the business. By running their salaries through the Income Statement it would reduce the profit and result in lower taxes. The way SARS taxes partnerships is the reason for accounting for salaries in this manner. 

So the accounting treatment of partners' salaries goes like this:

Every month: Debit Partner A: Drawings, Credit Bank. 

At the end of the year: 

Drawings are closed off to the Current Account by: Credit Drawings: Partner A, debit Current Account: Partner A.

Salaries are then credited to the current accounts, to balance off the salaries taken as drawings. 


I'm not sure if I'm making sense here? I'm trying to wrap my head around how I might do what I would do manually, in Pastel/TurboCASH. Their automatic year-end procedures are what make things tricky.  :Confused:

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## Neville Bailey

Hi Mark,

I think we have a case of:

Me not explaining things clearly; orMe not understanding partnership accounting clearly.
or a combination of the two!

Allow me to take a completely different tack on this issue...

When creating a fresh set of accounts in Pastel, there is the option of  selecting from a list of pre-set Chart of Accounts (CoA) templates,  which one can then tinker with afterwards to refine it to one's  particular needs.

For example, there is a template CoA for Manufacturers, one for Hotels, etc. I found one that is for a Partnership,  so the following screenshots are all based on that template. The  terminology is slightly different to what you and I have used thus far,  but I think the concepts are the same.

Here is what the Chart of Accounts looks like:



As you can see in the above screenshot, there is a main Capital /  Distribution account for each partner, with all the relevant  sub-accounts. In this example, there is no mention of the term "Current"  accounts, but they are there, albeit with different terminology!

In my example, I have processed some transactions for income and various running expenses.

I also processed capital inputs by each of the partners, i.e. Partner A  injected R50,000 and Partner B injected R60,000 (each of these  transactions resulted in Bank being debited).

I also processed Salaries of R1,000 for each partner.

Here is the resultant Trial Balance (before any appropriation entries):



Note the net profit of R4,473.67.

If I assume that the net profit is distributed equally between the two partners, I would process the journal as follows:



After the above journal has been processed, the trial balance would look like this:



The Income Statement and Balance Sheet reports would look like this:



Now I run the Year End process in Pastel.

The resultant Trial Balance is as follows:



I hope this is more helpful!

I have ignored transactions such as interest on capital, as these as simply extensions of what I've shown above.

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Mark Atkinson (12-Feb-11)

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## Mark Atkinson

Hmm. Very interesting.

Thanks for taking so much time to help me out with this, Neville! Now the question I have is: Which version of Pastel are you using??? I've got Xpress start-up 09 as well as Partner 07 and I'm damn sure there was no chart of accounts for partnerships? Had there been one, my life would have been a million times easier over the past year or two.

I'm really hoping it's not only a feature of Pastel Partner, because we definitely can't afford to pay for a new version of Pastel Partner just yet!  :Frown: 

Thanks again for your time invested. I see now that I probably need to allow some variance in the way partnerships _should_ be accounted for and the way that it needs to be accounted for in various accounting systems. Both ways will produce the same result, I'm sure.

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## Neville Bailey

Hi Mark,

Your Xpress 2009 version will have that template, as will prior versions.

Here is a screenshot of the relevant section of the Pastel Setup Assistant in Xpress 2009:



The only catch is that you need to have made the above selection before you start processing in a new set of accounts!

Alternatively, you can edit your existing Chart of Accounts, but that could get tiresome and tricky, if you have transaction history already.

If you are really keen to "re-arrange" your existing Chart of Accounts, in line with the template, I have a tool that can do exactly that, even if there is transaction history. My tool can merge more than one GL account into one (consolidating all the history into the one account) or delete existing GL accounts, as long as you have a new "home" for any history that might exist in the GL account that you want to delete. Renumbering and renaming existing GL accounts can also be done.

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Mark Atkinson (12-Feb-11)

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## Mark Atkinson

Aha! I've found it. I guess when browsing the charts of accounts before I was discouraged by the "Medical practitioners" wording. I see that it will work just as well for us though. 

Luckily as of the end of this financial year (28 Feb) we are closing our old partnership and reopening it as a new business, under a new name and what not, so existing transactions are not an issue.

One other question I have for you is: How can I go about resetting the companies in my copy of Pastel Xpress Start-up? It has a one company limit and I lost all the data relating to that company (haven't used my Pastel Xpress for a good few months now because of it.) but it won't let me create a new company because my registration has still got the old company attached to it, despite me having no data for it.  :Oops: 

Is there any way for me to be able to create my company without having to buy a new copy of Pastel?  :Confused:

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## Neville Bailey

> Luckily as of the end of this financial year (28 Feb) we are closing our old partnership and reopening it as a new business, under a new name and what not, so existing transactions are not an issue.


Good stuff!




> One other question I have for you is: How can I go about resetting the companies in my copy of Pastel Xpress Start-up? It has a one company limit and I lost all the data relating to that company (haven't used my Pastel Xpress for a good few months now because of it.) but it won't let me create a new company because my registration has still got the old company attached to it, despite me having no data for it. 
> 
> Is there any way for me to be able to create my company without having to buy a new copy of Pastel?


No need to buy a new copy of Pastel!

If you browse your Xpress 2009 DVD, you will find a file named Reset.exe in the following folder: Util...Pastel Utilities.

Copy that file into your C:\Xpress2009 folder and then run it.

Now here's where you may have a problem - the Reset utility needs to be registered before you can use it, and normally you could register it by going to the Customer Zone on the Pastel website. However, you need to be an active Pastel Cover subscriber to get access to the Customer Zone.

However, I can assist you via TeamViewer (by registering the utility with my credentials) - the whole exercise shouldn't take more than 5 minutes. 

Make sure you you save the version of TeamViewer in the link above, and save it your desktop (I haven't upgraded my version of TeamViewer from V3, as I cannot justify the cost!)

Give me a call on 0824567881.

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Mark Atkinson (12-Feb-11)

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## Mark Atkinson

Neville, you're a lifesaver! 

I'm not home at the moment, but I will get hold of the reset file, as well as download TeamViewer and give you a call on Monday, so as not to take up more of your weekend time!

Thanks once again!

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## Neville Bailey

> ... give you a call on Monday ...


I will be fairly tied up on Monday, running between appointments in PMB and Durban, but call me anyway and I'll make a plan to fire up my laptop and 3G card at some coffee shop in between appointments!

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Mark Atkinson (12-Feb-11)

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## Mark Atkinson

Well is there somewhere I can download that little reset.exe application? If so, I'd be happy to give you a call now and get it done quickly. I have downloaded TeamViewer already. 

I don't want to inconvenience you anymore than I already have.

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## Neville Bailey

No problem - call me now.

I can transfer the utility to you via TeamViewer.

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Mark Atkinson (12-Feb-11)

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## Mark Atkinson

Thanks so much for helping me resolve all my issues, Neville! You'll be sure to be the first call I make with any Pastel related needs.  :Smile: 

Also, if you ever need any help with design- or website-related queries, please feel free to ask away - We'd be happy to help. 

Thanks again.

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## Neville Bailey

My pleasure Mark - you must join me for a cup of coffee in one of my many coffices (coffee-shop + office) around Durban sometime!

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## CharlC

Hiya Guys

Can someone help me - Pastel gave an error message when doing the year end - so the person working with it re-did the year end without checking and now Pastel is in 2013.

She also overwrote the backups. Is there any way to undo this extra year end ?

Kind Regards
Charl

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## Neville Bailey

Hi Charl,

Hopefully no transactions have been processed since the second year-end! And no backups...hmmm, I'm sure you won't allow that to happen again.

I should be able to assist you, by editing the data tables with some special software that I have. We can do it remotely, via TeamViewer.

Drop me a mail, or fill in your details on my online form here, and we can make it happen.

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