 here in order to account for that 170 difference now Ultimately that 170 difference is going to be split between the capital accounts But I'm first going to record it as we generally would record it in a normal transaction And that is that we would have a gain or loss on the transaction in this case We have a gain so the gain represented by by brackets We had a loss it would be it would be a debit balance if we have a gain It's going to be a credit balance We're going to have a gain here because of course the cash was bigger than the inventory was on the books for So that's going to go to this account gain or loss I'm going to copy that on the sale copy that put that in j6 right click and paste it one two three And then I'm going to call this the plug formula. I could just type it in there It's going to be a credit of 170 But I'm going to do it with what I call a plug formula and that's going to be instead of equals It's going to be the negative sum of The 700 I highlight this whole square. So It's going to be the 700 minus the 530 then we're going to say that take that and multiply times negative one meaning flip the sign so that we have 170 we can also see it this way if I add up these two now we have the 700 on the credit side 700 on the debit side if we were to take the debits Minus the credits they add up to zero All right, let's post this out and see if it does what we think it should do And of course, what do we think it should do the cash should go up The inventory should go to zero and then we're going to post the difference to the gain Which will have an effect on the income Okay, so we're going to go to the p4 and we're going to post this We're going to see what happens from the beginning to the ending balance in this section So we're going to say this equals and point to this 700 000. That's a debit This is a debit. It's going to make the debits go up in the debit direction And put us out of bounds by the 700 then we're going to go to p5 or in p5 We're going to say equals point to the 530. This is a debit. That's a credit. They are opposites. Therefore, this is going to go down to zero And then we're out of bounds by the 170, which will be the gain or loss So we're going to go to p12 And we're going to say equals and point to this 170 Which is a gain and that will increase this to 170 put us back in bounds put net income up net income Is going up and that that is represented by a credit credits are kind of like good on the income statement meaning It's a gain not a loss Now the next step on this is that remember over here we allocated this information to the capital accounts So now this is kind of like the closing process. We're going to talk about here And we're instead of closing it out to the income summary and whatnot We're just going to close this gain now out to the capital accounts Here in accordance to their profit sharing Here, so we're going to close this gain out. So this gain has a credit We need to make it go to zero. How do we make something go down? We do the opposite thing to it, which in this case would be a debit So I'm going to copy that and right click and copy that Skip a line for a new journal entry. The debit will go on tops. We'll put that right here in cell j8 Right click and paste one two three All right, the debit is going to be for 170,000. That's what we need to make this go to zero Then we're going to need a credit of 170. What are we going to credit the capital accounts? We're going to credit the capital accounts in accordance with their profit sharing percentage over here So we're going to have to copy these i'm going to copy these capital accounts And of course, what is that going to do to the capital accounts? It's going to increase the capital accounts We're going to credit them making them go up because we're going to do the same thing to them Which makes sense because this is of course a gain Which will increase the amount that is o2 the owners being the capital accounts So we will copy these I highlight all three of them highlight all three right click and copy And I'm going to paste them right here paste them in j9 right click and paste one two three We're in the credit side now. We could just list these numbers the 85 the 56 the 28 33 I'm going to recalculate them just so we can see the calculation one more time So the calculation would be I'm going to say a negative to make it a credit and then point to this 170 We need that 170 to be allocated Times in the case in the case of the case capital count times this 50 percent And entered so it's the 170 times that 50 and I'm going to do the same for c negative instead of equals to make it a bracketed number negative of this 170 times and then I'm going to point to this point this 33.33 And enter and once again note that that number will be slightly different if we did it on a calculator So we want to point to this cell because that cell really has two over three plus two plus one two over six not 33.33 because it's really 33.3333 So then we're going to be down here in l 11 and we're going to say negative and point to the 170 times and then pointing to this 16.67 for m And let's see if that did what we think it should do the credits add up to the debits the credits add up to 170 which equals the debits that's good We highlight all of them the debits and the credit that means then that the debits of minus the credits are now Zero which that's good. That means that they're equal. Okay. So let's post this out then We're going to post the gain to the gain. So we're going to post the gain down here We're going to post it to the blue area. There's already something in there Therefore what we're going to do is double click on that and go to the end of it I can see of course that this gain account is there. I'm going to go to the end I'm always going to select plus when we post to this trial balance section Then we'll post this 170. That's a credit. This is a debit. Those are opposites going to make this go down to zero Which is what we wanted to happen now. We're out of balance here We're then going to post these to the capital counts, which will increase the capital counts We'll start out with K's capital count. Here's K's capital account. Here's what we're going to post it in sell p7 Equals and we're going to post this 85 credit. That's a credit. This is a credit It's going to make the credit go up in the credit direction Then we're going to go to p8 same thing. We're going to say this equals And we're going to post this C's capital account and post the number 56 6 6 7 That's a credit. This is the credit it's going to make the credit go up in the credit direction And we're going to do this one more time. We've got m's the last one. M is here We're going to post it to the blue section in p9. We're going to say this equals Point to the 28333 That'll bring the capital account up and put us back in balance So now we've basically closed out net income And posted it to the capital account. These are new capital account balances represented in the trial balance And these are the capital account balances represent in our little worksheet over here So now we've sold the inventory the next step again before we start paying off the capital account balances We probably want to pay off the liabilities first So we'd like to pay off the third parties Then we'll be left with just cash and capital accounts And we'll just be able to pay off the capital accounts at that point So now we would like to pay off the accounts payable So i'm going to do that with the worksheet first and again, some people like the worksheet better Some people like to think about it in terms of the trial balance We'll look at it in both these ways But if we look at this worksheet, we see that we have 240 In terms of payables, we're going to pay that off. That needs to go to zero So i'm going to say this is going to go down by 240. We're going to pay off the liabilities What are we going to pay it with? We're going to pay it with cash So we're going to go over to the cash here and we're going to say this is going to go down by 240 So there we have this and notice what we're looking at. We're just looking at this line. This is where we're at I'm not worried about any of this stuff up here. That's hit. That's in the past. We're on this balance We're going to record this activity And then we'll bring the new balance down here That's not a shoe or anything. It's the new balance that we have on our Worksheet. Okay, so that means that the cash is going to go down from the 8 8 2 5 minus the 240 So let's do that. This equals the 8 8 2 5 And i'm going to say plus The 240 why? Because we put the 240 in here or i did as a negative number Therefore it's going to be this plus a negative number And if that's confusing just note that obviously if we went the wrong way if i delete that and i said this equals This minus the 240 Then it's going to come up to Something that doesn't make any sense that what went up. I wanted it to go down So that means well, we went the wrong way So i'm going to delete that and i'm going to say this equals the 8 8 2 5 Plus the negative that's in there 240 And that will make it go down. So that looks that looks reasonable because it went from Went down, which is what we wanted. So then we're going to go over here and do the same thing There's not any inventory at this time. We know that the accounts payable same thing. So liability went from here plus This number of which is a negative and therefore took it down There will be no effect on the capital count. So we're just going to bring down the capital counts capital count still is this number For k capital count still is this number for c And the capital count for m is still this number of the 195 333 So there we have this let's do that same information in terms of the trial balance and a Journal entry. So note, we're going to do the same thing again A lot of people like me like would rather think through this in terms of a trial balance rather than The worksheet because we can see here what what we're going to have happen and go through basically our list of questions First question is we can think about is cash affected in this transaction. Yeah cash is affected. We're paying cash In order to pay off the accounts payable. So we're paying the liabilities Therefore cash needs to go down Cash has a debit balance represented by the fact that it does not have brackets around it How do we make it go down? We do the opposite thing to it as what it is. So that's a debit We're going to credit cash. So I'm going to copy that I'm going to skip a line So it's on a new entry and I'm going to skip another line because I want the cash or the credit to be on the bottom So we're now in j 14 Right click and paste 1 2 3 Then we're going to go to the credit side. So we're in l 14 And the credit will be for the cash that we paid of the 240. That's how much we owed in the liabilities we're going to say negative or negative right 240 Thousand to represent the credit and there we have that then we're going to debit Something of course and the thing that we are going to debit will be the accounts payable Why because we're paying it off and we can see that accounts payable has a credit balance in it And we need to make it go down. Therefore, we're going to do the opposite thing to it Which will be a debit. So we're going to debit accounts payable I'm going to right click on a copy of the accounts payable. I'm going to put that in cell j 13 Right click and paste it 1 2 3 And that will be for the 240 All right, let's post this out and see if it does what we expect it to do What do we expect it to do? Well, I think the accounts payable should go down to zero because we paid it off And then the cash will go down by the amount that we paid off for the accounts payable bean 240 All right, so let's do that. So accounts payable is the first account. Here's accounts payable We're going to post that to the accounts payable in the blue section. So we are in p 6 We're going to say that equals we're going to point to the 240 So we have the credit and then minus the debit will bring the balance down to Zero and now of course we're out of balance Now we're going to post the cash on the credit side to the cash here in the entries section So I'm going to double click on that go to the end of it. We can see the other cash account that is in there We're going to say plus and then point to this amount here, which is negative or in brackets for excel That's a credit. This is a debit. Those are opposites. It's going to make the cash go down And that puts us back in balance here. So we can see the same information that we have here. We've got the cash of 6425 6425 Then the capital counts of these respectively for kc and m and we have those amounts here Here so we are tied out with both trial balance and in terms of the worksheet And now we now we can finally pay off these partners that keep on asking us to pay them off Because now we have cash of 6425 and we simply have uh capital accounts now that add up to 6425 So now it is safe for us to take that money pay off the partners because uh, we're not going to run into the problem of Coming up short because of the sale of the inventory not matching or something like that Therefore we can do that first with a worksheet. So if we go to the worksheet over here, we're going to say, okay The uh cash is going to go completely down. We're going to pay all of it off. So I'm going to say negative 6425 And we're going to reduce the capital counts by what is in there. So we owe K the same 178 thousand we all see 269 167 we owe m 195 333 and we should end up with zeros at the end of the day Also want to note that uh many times when we think of these capital accounts It gets really easy for us to start thinking that the capital account balance should always be in proportion to the ratios for profit sharing That's not going to be the case that the capital accounts Will not generally match the profit sharing because the profit sharing is based on How much should be allocated For profit and loss. However, what's not going to be in That Percentage is the amount of draws. So partners do not have to draw money Out in accordance with the profit sharing. So some partners may draw out more or less and therefore The capital accounts will not be in relation to The ratio necessarily most likely not But the uh income allocation will be in in this format So note that just be aware of that. That's a common question that comes up So then we're going to of course have the 642 5 plus the 642 5 once again This is this plus a negative number, which makes it go down to zero And if we'll do that all the way across it's going to be the 178 plus this number, which is a negative making it go down to Zero and obviously if it if it went up and doubled itself, we know we went the wrong way So then we're going to do the same thing here. This equals this number plus this negative number makes it go down to Zero and then this equals i'm going to i'm hitting plus instead of equals That sometimes is a little bit faster if you want to because if you have a 10 key on the side Plus will also do a formula. So you can say this number plus this number and enter all right, so we're going to do that same thing in terms of A trial balance and once again, I tend to prefer the trial balance. I can see what's in the trial balance right now I've got cash and I've got capital accounts and we can answer our question. Well, what's going to happen to cash is cash affected Yeah, we're paying cash. We're going to pay it all off. We're going to pay all the cash out to the owners of the Partnership so cash has a debit balance. We need to make it go down to zero How do we make it go down? We do the opposite thing to it which in this case would be a credit So i'm going to copy in for copy that and i'm going to try to put it on the bottom Which is a bit of a guessing game, but i'm going to say we're going to skip a line And then we have three Capital accounts that are going to go on top. So i'm going to skip a one two three more lines And then I think it should be right here down in j 19 In order to put it on the bottom and once you can put it on the bottom It's just a convention It doesn't really have to be that way if we put the debit if we put the credit on top Uh, it really wouldn't matter But some people it really Does don't like that and some software if you're using a software in a school or something and they use some type of software That's going to automatically grade it then you could get marked off if you do that But just realize in practice in most accounting software if you put the the debit or credit in a different order Does not always you know, it shouldn't make any any problem and if You are in a complicated journal entry that uh, it's going to be And you're going to go back to it at a later time You may want to put it in whatever order That you would make most sense to you when you go back and audit it But i'm going to put this on the bottom right click and paste it one two three We're going to credit it by The amount that's in there, which is a credit negative six forty two five And then we're going to allocate that to the Partners kc and m in accordance with what is in there So i'm not going to allocate it in accordance to their profit sharing We're just going to pay off what is in those accounts. We're not allocating net income in this case We're paying off the cash So that that's there's a difference in there when we allocated net income We allocated it based on the income allocation When we pay off the capital accounts They they can draw out whatever they want or whatever the terms are but theoretically they can draw out You know the balance that is in their capital account So i'm going to copy that We're going to paste that right here in j16 right click and paste it one two three And i'm just going to put in there right down the line. We're going to need debits of one seven eight thousand We're going to need a debit for c of 269 167 we need a debit for m of This one nine five three three three All right, so now let's see if we are in balance do our debits equal our credits We're going to add up the debits. I'm just going to highlight them look at the task bar down here 1425 That's what adds up to the credit 1425. We highlight all of them debits minus the credits add up to zero Therefore we are in balance and we could post this out So first we're going to post k's capital account. So here's k's capital account Here's k here And so there is something in it therefore we're going to double click on it I could see what's in there there this account. I'm just going to add to it We're going to go to the end of it say plus and point to this 178. What will happen here? It's going to go down to zero Then we're going to go to the c's capital account. So here's c's capital account. Here's c's capital account Here's what we're going to post it in the blue area. There's something in there already We're going to double click on it go to the end of it and then say plus Then point to this to uh 69 167. That's a debit. This is a credit those are opposites Therefore it's going to make it go down to zero Then we are going to do the same thing for m. Here's m here. Here's where we want to post it There's the posting area. We're going to double click on that go to the end Select plus point to the 195 333. That's a debit. This is a credit therefore But it's going to go down to zero because they are opposites Then we just need to post the cash out. So here's cash Here's cash, we're going to post it in the cash area. So we're going to double click on it We can see a few things in there and so this is in there This is in there. We're on the end of it. We're going to say plus and then point to this 642 5 And enter makes the cash go down to zero So now we have now liquidated the company taking everything from the trial balance down to zero Remember the process of the liquid I did liquidation Will be that we want to sell the assets represented by just inventory in this simplified example Then we want to allocate the gain or loss to the partnership Partners in the partnership and then we want to take that cash that we paid That we got from the sale of the assets pay off the liabilities Then pay the capital accounts. Why do we do it in that order? So that we don't get into a situation where we pay one particular partner And then realize that the inventory is not worth or whatever assets we have is not worth What we thought it was be worth and then get into a sticky situation there