![]() Sometimes things do not go as well as planned in a business and it may be necessary to go out of business. If the partners cannot or do not decide how income will be allocated, allocate it equally between the partners (for 4 partners divide net income by 4 for 3 partners divide net income by 3, etc.). To record allocation of $10,000 net LOSS to partners. To record allocation of $30,000 net income to partners. To record allocation of $70,000 net income to partners. The journal entries to close net income or loss and allocate to the partners for each of the scenarios presented in the video would be ( remember, revenues and expenses are closed into income summary first and then net income or loss is closed into the capital accounts): Account To use this in calculations, you will add the numbers presented together (3 + 1 = 4) and divide each number of the sharing ratio by this total to get a percentage. Note: The video shows a sharing ratio of 3:1. This is by far the most confusing so a video example would be helpful. In this method, we start with net income and give salaries out to the partners, then we calculate an interest amount based on their investment in the business, and any remainder is allocated using set percentages. Salaries, Interest, Agreed upon percent: Since owners are not employees and typically do not get paychecks, they should still be compensated for work they do for the business.To allocate income, the percent of capital is multiplied by the net income or loss for the period. ![]() Using Sam and Ron, Sam has capital of $100,000 and Ron has capital of $35,000 for a total partnership capital of $135,000 (100,000 + 35,000).
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