QuickBooks Questions – How do I do this and that???
Member since 2018 · 20 posts · 0 votes
QuickBooks Questions – How do I do this and that???
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes@Kelly Cruz - I think what @Caleb Heimsoth is getting at is that setting up multiple properties with different ownership percentages is a nightmare to report all in the same set of books, much less a tax return. You'd have probably been better off showing each property that has different ownership percentages in its own LLC.
I imagine its also a legal nightmare, but I am not a lawyer and all I'll really say is that you should probably check with one.
While it may be pretty easy to track each property and then calculate out owner payouts that way, I guess what I'm wondering is what you're going to do with general business expenses. When you buy a box of paperclips, or a lawnmower to use on all properties or take a vendor out to lunch, how are you going to distribute those kinds of expenses across the various partners? That's probably what Caleb means by a nightmare.
I agree with the others that QuickBooks will not do this calculation for you. Nor should you transfer amounts to Owners Profits accounts more often than at the end of the year. If you're wanting to show owners profits periodically throughout the year, you'll either want different software or you'll want to do it in Excel.
32 Replies
- Specialist · Tampa Bay Area, FL · Member since 2018 · 106 posts · 72 votes7y@Kelly Cruz Hi Kelly, Thank you for posting! Quickbooks is an excellent platform for producing property financials, but unfortunately it doesn’t have the capability to provide what you are looking for. What you are requesting is reserved in the more “elite” property management software tools, for example, Yardi Investment Management. Specifically, the equity positions, ownership percentages, etc. would be part of what is referred to as waterfall distribution/calculations in structured finance. This is entirely more complex than what can be done with Quickbooks. But good news! This can be prepared in an Excel spreadsheet and maintained/updated on an ongoing basis. Please let me know if this helps or if you have any more questions. I’d be happy to connect! All the best, Daniel Reyes
- Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes7y
You can show the equity for each partner under the Equity section. Create an equity account for each partner. then just post the draws as needed when you do those transactions. pretty simple. If they invest you would debit your bank account and credit their equity account
To show the balance of any Balance sheet account you can run a balance sheet report or just run a report for the account you want to show.
Hope this helps
- Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes7y
Just read @Daniel Reyes post. You can post basic credit and debit in QB, but you will need to do the calculations for how much each partner gets elsewhere. But you CAN show the total in QB
- Member since 2018 · 20 posts · 0 votes7y
Thanks @Daniel Reyes and @Mary M. for the helpful info. It seems that as long as I keep QuickBooks updated, I should be able to figure out equity position pretty easily and keep track of it in Excel.
After a property is sold, what are the steps to record profit to each partner? I’m not sure how to show the profit split and record this transaction.
Also would it make sense to organize each partners equity account in the Chart of Accounts in the following matter? I’ve only seen examples showing partners Capital Investments & Draws, but not Profit/Income. Would this setup be helpful in keeping track of each partners profit?
Member Equity
Partner 1 Equity
Partner 1 Investments
Partner 1 Draws
Partner 1 Profit
Partner 2 Equity
Partner 2 Investments
Partner 2 Draws
Partner 2 Profit
Partner 3 Equity
Partner 3 Investments
Partner 3 Draws
Partner 3 ProfitI’m new to QB and don’t have an accounting background, so not sure if any of these ideas make sense for what I’m looking for. Anyone's input would be helpful, thanks!
- Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes7y
@Kelly Cruz Each partners income would be recorded at the end of each year... your CPA would give you the Journal entries.... But yes, you can set up the equity accounts like that! but profit would only move off the P&L at the end of each year IMO.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y@Kelly Cruz wow this sounds like an accounting nightmare. I hope you plan on paying your cpa a fortune
- Member since 2018 · 20 posts · 0 votes7y
@Caleb Heimsoth why is it an accounting nightmare? How would you suggest I set it up instead. Any advice would be helpful, thanks.
- 7ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 657 votes
Just create separate GL accounts for Contributions for each partner and Distributions for each partner.
3 Partners = 6 separate GL accounts
Income Statement will not show the breakdown of the equities of in and out.
Balance Sheet will show the accounts, but they would have to manually add and subtract to see what's their remaining contributions. As for the Profit, that is something you need to do manually as well. I suggest using Excel to track.
I personally do not use QB, but I can't imagine that being difficult.
Disclaimer: This is just my opinion as a Real Estate Consultant and Accountant.
- 7yLinda WeygantPro MemberInvestor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
@Kelly Cruz - I think what @Caleb Heimsoth is getting at is that setting up multiple properties with different ownership percentages is a nightmare to report all in the same set of books, much less a tax return. You'd have probably been better off showing each property that has different ownership percentages in its own LLC.
I imagine its also a legal nightmare, but I am not a lawyer and all I'll really say is that you should probably check with one.
While it may be pretty easy to track each property and then calculate out owner payouts that way, I guess what I'm wondering is what you're going to do with general business expenses. When you buy a box of paperclips, or a lawnmower to use on all properties or take a vendor out to lunch, how are you going to distribute those kinds of expenses across the various partners? That's probably what Caleb means by a nightmare.
I agree with the others that QuickBooks will not do this calculation for you. Nor should you transfer amounts to Owners Profits accounts more often than at the end of the year. If you're wanting to show owners profits periodically throughout the year, you'll either want different software or you'll want to do it in Excel. - Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes7y
Originally posted by @Linda Weygant:
@Kelly Cruz - I think what @Caleb Heimsoth is getting at is that setting up multiple properties with different ownership percentages is a nightmare to report all in the same set of books, much less a tax return. You'd have probably been better off showing each property that has different ownership percentages in its own LLC.
I imagine its also a legal nightmare, but I am not a lawyer and all I'll really say is that you should probably check with one.
While it may be pretty easy to track each property and then calculate out owner payouts that way, I guess what I'm wondering is what you're going to do with general business expenses. When you buy a box of paperclips, or a lawnmower to use on all properties or take a vendor out to lunch, how are you going to distribute those kinds of expenses across the various partners? That's probably what Caleb means by a nightmare.
I agree with the others that QuickBooks will not do this calculation for you. Nor should you transfer amounts to Owners Profits accounts more often than at the end of the year. If you're wanting to show owners profits periodically throughout the year, you'll either want different software or you'll want to do it in Excel.Kelly, Linda pretty much hit the nail on the head, as far as what I was saying.
I recently formed my first partnership and we briefly discussed doing something like what you’re talking about but then we realized what a headache it would be.
- 7ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 657 votes
If you do not mind me asking, how many units do you have?
I've done some work where I had to show 33 different equity partners in 1 LLC before. Distributions (interest) was given to the partners on a monthly basis.
- Member since 2018 · 20 posts · 0 votes7y
@Simon W. we're strictly flipping under this LLC, and have been doing so for several years with multiple flips per year. The majority of properties are owned for less than six months.
- Member since 2018 · 20 posts · 0 votes7y
Thanks for everyone's input! Not that it makes a difference, but each of the three members of the LLC are family members and each is listed as a managing member.
At tax time, our CPA files a tax return for the LLC with a Form 1065 and each member receives a Schedule K-1 which is then filed with our personal tax return.
The reason each property may have a different profit split is because there may be investments and draws by an individual member, therefore changing each equity position.
For general expenses not tied to a specific property, those are split equally between the three of us. As for profit on the sale, that is split according to our equity position at time of purchasing a particular property.
I’m super organized with all our numbers using Excel and submit all the breakdowns to the CPA. Since keeping track of everything in Excel is not ideal, I’m now setting up QuickBooks to simplify my bookkeeping.
How we have this setup seems simple and straightforward to me having no accounting or law background. But now after reading these posts, I’m wondering if this setup breaks accounting and tax laws?
- Specialist · Tampa Bay Area, FL · Member since 2018 · 106 posts · 72 votes7y
Hi again Kelly,
I'm happy to see all of the feedback you have received! I'm encouraged by your willingness to jump into this without the conventional accounting/law background by the way :). I was interested in circling back one more time to your original reply:
Yes, for these dynamic calculations (capital infusions/draws, etc.), it may be in your best interest to set up the waterfall tranches in Microsoft Excel. You will be in good company, as many institutional investment companies in real estate portfolio management still perform these kinds of calculations in Excel. And if you are maintaining the income statement in Quickbooks, you will be able to "close out" net income to current year retained earnings once per year, or more often if you prefer (in other words - move net income from the income statement to the balance sheet).
I do have a general question for you: are your partners subscribing to the fund, or LP, via a Private Placement Memorandum, and/or do you have an LPA (limited partnership agreement)?
Please feel free to send me a PM or reply here if you prefer. The setup of this on an informational level in Quickbooks can be made simple. We just need to ensure the income statement is structured to work in tandem with the balance sheet, not completely separately. A wise man used to ask me, "does your balance sheet balance?" ;)
Thank you!
All the best,
Daniel Reyes
- 7ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 657 votes
Originally posted by @Kelly Cruz:
The reason each property may have a different profit split is because there may be investments and draws by an individual member, therefore changing each equity position.
For general expenses not tied to a specific property, those are split equally between the three of us. As for profit on the sale, that is split according to our equity position at time of purchasing a particular property.
My free advice:
On an earlier post, I suggested to use 2 asset gl accounts one for contribution and one for distribution. It just makes it clear for the CPA at year end so they will know what % each partner is at for each property.
As for the general expense, it's going to be part of your Income Statement. The net income is what you needed to worry about. Revenue - Income = N.I. which becomes retained earnings and your CPA can calculate and give you a journal entry to split the retained earnings by ownership%.
- Member since 2018 · 20 posts · 0 votes7y
@Daniel Reyes I'll probably continue to use Excel to keep track of anything I wouldn't be able to do in Quickbooks. Regarding our partnership agreement, we're set up as an LLC and have everything laid out in our operating agreement.
@Simon W. Thanks for the advice! I’ll keep that in mind.
- Member since 2018 · 20 posts · 0 votes7y
I would appreciate if someone can list out the steps to post the profit on the property sale to each of the three partners equity account. What is the best way of doing this? I'm a little confused with this step, thanks!
- 7yGita FaustBusiness MemberAccountant · Richboro - Philadelphia, PA · Member since 2008 · 901 posts · 246 votes
@Kelly Cruz Call me Monday EST.
Accounting is going to be a nightmare for you anyway. Why? Because you can make a deal in your sleep. On the other hand, for us, Accounting and Bookkeeping is a puzzle where we put the pieces together.
As mentioned above - this is the right way to create the accounts.
Partner 1 Equity
- Partner 1 Investments
- Partner 1 Draws
- Partner 1 Profit
Partner 2 Equity
- Partner 2 Investments
- Partner 2 Draws
- Partner 2 Profit
Keep in mind the more detailed accounts, it is better for you in the long run.
When partners invest or give a loan to the business, as to money in and out by the partners, if it is for a specific property, you should add the Class (if using QuickBooks).
THAT IS THE ONLY way you will know the equity for each partner. And able to calculate your profit or loss share, if calculating on the Equity. Of course, there are many ways partners agree to share.
- 7ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 657 votes@Kelly Cruz If you want to show profit for each sale to each individual partner. You will need another GL account for each partner called Gains on Sale. The entry is the same when you closed on a sale, but the one line item is now split to 3 line items by the partners' % of ownership. There's more to just give me the steps. I'll need to see the closing docs and your books to see how much equity each partner actually has.
- Member since 2018 · 20 posts · 0 votes7y
Thanks @Gita Faust and @Simon W. for the helpful info.
Of all the online research and reading I've done, I've haven't seen anyone include the Profit / Earnings in the chart of accounts for each partner. Without it there, generally where would you list the Profit /Earnings for each partner?
Additional question:
What’s the best way to keep track of general expenses that would need to be split between the three partners? Should I assign them as a class or a job? I want to keep track of expenses so that at the end of the year or however often, I can split up those expenses between each partner? I already keep track of property specific expenses by class. Do I also create a class called General Expenses. As I'm writing this, I think I answered my own question, but just want to double check. Thanks!
- Member since 2018 · 20 posts · 0 votes7y
And in addition to the Earnings / Profit equity account for each partner, should there also be an equity account for each partner where I keep track of general expenses. If not, then where do I post expenses for each partner?
Partner 1 Equity- Partner 1 Investments
- Partner 1 Draws
- Partner 1 Earnings / Profit
- Partner 1 Expenses
Partner 2 Equity
- Partner 2 Investments
- Partner 2 Draws
- Partner 2 Earnings / Profit
- Partner 2 Expenses
As you can see, I’m a complete QuickBooks novice trying to figure this out as I go…
- 7yGita FaustBusiness MemberAccountant · Richboro - Philadelphia, PA · Member since 2008 · 901 posts · 246 votes
So let me ask you a few questions to start with:
- are you one of the partner?
- what is your position in the business?
- do you rent or flip?
- when did you purchase your first property?
- did you sell a property yet?
- did you create your chart of accounts?
- did you set up your file?
- as you entered your property - are your reports accurate?
Here are a few questions. For every question you ask, I would need more details to guide you the right way.
You will only find a part of the answer and will have to piece all info together from various places. It is a good place to start but I strongly suggest to take a better approach.
- Member since 2018 · 20 posts · 0 votes7y
- are you one of the partner? Yes one of the three partners, all family members.
- what is your position in the business? I run the business and handle the bookkeeping.
- do you rent or flip? Purely flip, most within 3 - 6 months.
- when did you purchase your first property? 2011 for this particular partnership.
- did you sell a property yet? Selling our 14th property as a partnership (many more prior to 2011 as an individual investor)
- did you create your chart of accounts? Yes and optimizing it as I learn.
- did you set up your file? As of two week ago.
- as you entered your property - are your reports accurate? I hope so! Still in the learning phase, but I'll get it. I have all our bookkeeping in Excel but want to transition to QB to simplify our bookkeeping.
Thanks for any advice you can provide. I'm learning QB by reading these forums and learning from other people's questions, so hopefully the questions I ask here will be helpful to others learning as well.
- Real Estate Consultant · Norfolk, VA · Member since 2017 · 342 posts · 200 votes7y
Originally posted by @Kelly Cruz:
Thanks @Gita Faust and @Simon W. for the helpful info.
Of all the online research and reading I've done, I've haven't seen anyone include the Profit / Earnings in the chart of accounts for each partner. Without it there, generally where would you list the Profit /Earnings for each partner?
Additional question:
What’s the best way to keep track of general expenses that would need to be split between the three partners? Should I assign them as a class or a job? I want to keep track of expenses so that at the end of the year or however often, I can split up those expenses between each partner? I already keep track of property specific expenses by class. Do I also create a class called General Expenses. As I'm writing this, I think I answered my own question, but just want to double check. Thanks!
Net income will roll into the balance sheet as Retained Earnings. Normally, the net income are allocated to each partner in the tax return but not adjusted in the books, so it sits in the Retained Earnings Account. If adjusted in the books, normally it goes rolled into the Owners equity account.
Any income/expenses not specifically associated to a specific property should have a separate class (you may call it general & admin class).
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