 This presentation we will record journal entries for a new business recording the first Contributions by the owners by the partners to the partnership the information will be on the left side We're gonna enter that into the journals into the general journal and journal format And then we'll record that to a worksheet so we can see an example of what will happen What will happen very quickly in terms of the capital accounts and what has been put into the business So whenever we start the partnership, of course according to whatever agreement the partners come to We're gonna have to start off with some capital investments typically to get the business going from the partners So the most common type of capital investment would be to invest cash So we're gonna have to see investing cash into the company sees the owner So if we invest 10,000, there's not much confusion there, of course cash is going up We can go through our work series of questions is cash affected. Yeah, cash is affected cash is a debit balance account It's gonna go up. So we're gonna do the same thing to it another debit So we'll copy cash right click on cash and copy. We'll put that up here in B2 right click and paste 123 the amount then will be 10,000 Then we're gonna credit something for 10,000 as well I'm gonna do that with our negative of this number. We could put a negative 10,000 But I like that little formula to to put that in there. That'll be bracketed number and then What are we gonna credit who put the money in the owner did see and that's really What we want to be able to understand there's a difference between the capital contribution and the income statement say If this cash had come from a sale, then it would be revenue that would be increasing But if it comes from the owner Then we're gonna credit the capital and the capital will go up in a similar way as a liability goes up Meaning that the partnership in a sense owes the owner the partnership, of course owes the owner $10,000 here. That's Because the owner just put the $10,000 in now. Hopefully that the owner's gonna leave that that money in there Generate more revenue and then take money out from the revenue side. That's that's the point of the investment Of course, so we're gonna credit the capital count. I'm gonna right-click and copy We're gonna put that in B3 right-click and paste one two three so there we have that and Then we can post this so I'm gonna post this here to the cash in the trial balance. I'm in H2 We will say equals point to that 10,000 bringing the balance up from zero by 10,000 to 10,000 We're currently out of balance. So we're gonna record the other side Which is C's capital here. Here's C's capital on the trial balance. We are gonna be in cell H5 Within H5, we will say equals point to that 10,000 bringing the balance up from zero by 10,000 in the credit direction to 10,000 so now the company has $10,000 owes that 10,000 to the owner and The owner's gonna leave that money in look to generate revenue in the future Note that the no effect is on net income here Even though cash was received because cash and revenue are different this case cash was received Because of not because of a sale, but because the owner put the money in so next we're gonna have this second owner K contributes cash and the Partnership takes over or takes control of the accounts payable. So related to K So now the partnership is taking responsibility of a liability in this case So we still have cash going up. So cash is gonna go up. So we're gonna say copy cash It's a debit balance. We're gonna put that on top right-click and paste 123 the cash going in is 14,000 Then we're gonna have a liability that the partnership is going to assume the liability of the accounts payable So we're gonna put that on the books We're gonna right-click and copy that and we'll put that in b6 right-click and paste one two three and Then we're gonna put the credit of in this case 2000 because it's a liability account We need to increase it the the partnership is incurring more liability of taking on this liability Therefore we do the same thing to it another credit and then the difference will then go to the capital account So we're gonna have K's capital account here We'll right-click on that copy and put that in B7 right-click and paste one two three Let's try that it up. There it goes Okay, so then we need the amount and the amount is gonna be the difference between the 14 and the two We'll do that with our negative sum functions. I'm gonna put my cursor in D7. We'll say negative SUM double-click the sum function and highlight those cells To give us 12,000 again, it's 14,000 minus 2,000 of course 12,000 so that the 12,000 credits and the 2,000 credits is Equivalent to the 14,000 debit now note What happens here that the cash going into the company clearly? It would make sense that then we would we would be giving the cash back to the owner who put the cash in the company The accounts payable it starts to get a little bit tricky because note that the owner K in and of themselves Had was solely responsible for the accounts payable here now when it when it goes into the partnership What happens is now who all the partners are responsible So it kind of deludes in some way the the amount of responsibility that K has for that payable personally and so when we get into the agreement in terms of what the partnership is gonna take on in terms of cash and things like a Liability investments into the partnership that's gonna be a negotiation process between the partners So there's no it doesn't have to be an alignment note that the profit sharing is a three two one split here Doesn't have to be aligned here the investments don't have to align with the profit sharing It's just whatever whatever the partnership agrees on the prop the profit sharing is going to be what? How much of the profit is going to be allocated to the partnership? Doesn't necessarily have anything to do with the Initial investments from the owners to the partnerships it may they may have you know Use use the initial investments to then come up with the profit sharing Split or percentage, but there could be a lot of other factors involved in in that decision-making process as well so the last one we're gonna say contribute to equipment with an agreed value of 15,000 so we're gonna say equipment now is going into the business I'm gonna right-click and copy the equipment. We'll put that in B9 right-click and paste one two three and Then that's gonna go on for 15,000 now note that the equipment then as well if it's owned by the owner We don't really know what the market value is per se because we wouldn't know unless we sold it So we can get a we can get an average of the market value We're not typically going to take the book value from the owner Unless it's unless it's close to the market value or we agree upon it again It's it's really determined on what we agree upon When we put this information this equipment into the partnership What are the partners agree this equipment is worth and therefore? What are we gonna allocate it to the partnership? So it's kind of like starting over starting new within the partnership We don't typically take on any accumulated appreciation We typically put it on the books as of as if it was basically purchased in this time period in In a way, it's a similar type of agreement because the other two partners are negotiating kind of like if we had a market force To have whatever price they think is reasonable as part of the contribution to the partnership And so if they agree on 15,000 then they're going to owe back to the owner 15,000 credit So that's going to go into the capital count. So that's going to be M's capitals We'll right-click on M's capital and put that in B10 right-click and paste one two three So now I'm going to record these two. I didn't record this last one So we're going to go up to see up the cash here cash is a debit balance account So we're going to go there's something in it already. So we'll double click on it go to the end of it and say plus Then point to that 14,000 bringing that 10,000 up by 14,000 to 24,000 then we've got the accounts payable 2000 We'll go here in h4 where we will say equals And point to that 2000 bringing the balance up from zero by 2000 to 2000 Then we've got k's capital account k's capital accounts here. We are in h6 where we will say equals Scroll over to the 12,000 credit bringing that zero up by 12,000 to 12,000 credit So that that represents that we okay back 12,000 here And again, he hopes or she hopes or they hope that it's going to increase revenue And then we'll get draws in the future for this initial investment And then the equipment uh for this last journal entry equipment here It's going to be posted here to the trial balance. So we are in h3 where we say equals Point to that 15,000 And enter So we're up 15,000 on equipment and then the capital account is going to be returned. So we're here on h 7 Equals and we'll point to that capital account bringing that up to 15,000 So there we have it now we can see we have a trial balance Nothing's on the income statement It's kind of looks kind of like a post closing trial balance because we don't have any activity yet meaning There are no temporary accounts here. It's all permanent accounts They're all balance sheet accounts and we can see then that the assets here Of this and this minus the liability add up to 37,000 and it's all owed to the owner in this format which adds up to 37,000 That's the accounting equation uh in action here. So assets minus liabilities the top half of this trial balance Is equivalent 37,000 to the bottom half The equity 37,000 we have the added complication in a partnership To break out that equity to who is owed Which owner is owed and notes the relationship and the similarity between the liability and the The uh capital accounts if you think of the business as separate from the owners They're very similar because the business is a separate entity if you think of the business as just its own thing Then the partnership owes some third party two thousand dollars and the partnership owes the owners 10,000 12,000 and 15,000 for ck and m respectively