 So we're going to copy that going to put this over here in J26 right-click paste 1 2 3 and the credit will be for then The amount that is in there of a negative for the credit 530,000 Now of course we have an uneven debits and credits the credits are winning by that 80,000 they're winning by What we are going to call the loss That's the loss on the sale because we sold it for less than what we had it on the books for Therefore we're going to need another debit here that debit will be the loss We on this case notice over here in the worksheet. We allocated that loss directly to the capital counts We could do that here, but first I'm going to record it as we basically would record it If it was a normal business transaction into the loss on the income statement see the loss on the income statement then Allocate that loss in a closing type process to the capital accounts in this format So let's see what that would look like if we sold inventory at a loss We would then record the gain of the loss here in on the income statement in in 33 in this case right-click Copy I'm going to paste that in J27 right-click paste 1 2 3 We know the loss is that debit of 80,000 here I'm going to do what I call like the plug formula to calculate that 80,000 which will be summing up these cells and Flipping the sign so if I sum to these cells it would be a negative 80 We want a positive 80 therefore instead of selecting equals. I'm going to select negative and then sum of These four cells so the 450 minus the 530 gives us 80 so it's going to flip the sign and we already knew it was going to be 80 of course because that's That's what we needed in there I'm just going to use a formula to do so now if we highlight the two debits They add to 530 which is the credit and if we highlight all of it it adds up to zero So we are in balance note here that I put this Amount on the bottom even though it's a debit and and again some people that could disturb some people like I say In my opinion that helped me to think through the process to build the journal entry So that's why I put it in that format and it helps us to put that kind of plug formula in the gain area So if you're working in a lot of Programs it's not going to matter if it's not in order with the debits on top and the credits on the bottom However, if you're putting the information into something that's going to be automatically graded in some kind of format You may want to put the two debits on the top So that you're not marked off for just properness of debits on top. All right, so let's post this out We're going to post the cash first. Here's the cash. Here's the cash here We're going to post this to the adjusting column in p25 by saying equals and point to the cash of 450 That's a debit. This is a debit It's going to make the debits go up in the debit direction like so and put us out of balance down here We will then go to the inventory the inventory is right here. It's right here on the trial balance We're going to go into the blue area in p26 and stay equals Point to that inventory. What's going to happen inventory? It's going to go down to zero So the inventory is now off the books We have now sold it then we're going to report the gain which is going to be out of the loss in this case It's a loss. We lost money and that's going to equal the 80,000 So 80,000 is going to go up in the debit direction and we're representing a loss meaning that We lost money. That's represented by a debit on the income statement Now we're going to do kind of like the closing process We're going to close out what's in net income in this case net loss 80,000 to the capital counts of our three partners in accordance with their profit sharing Which of course will be this calculation that we did over here So the loss needs to now be closed out. This is kind of like the closing process It's got a debit in it. We need to make it go to zero Therefore we're going to do the opposite thing to it which in this case would be a credit So I'm going to copy that copy it and I'm going to try to put this credit on the bottom So that's going to be it to do it the proper way So I'm going to skip a line go to the new account Then I'm going to skip three more lines one two three because that's where the capital accounts will go And then I'm going to right-click and paste one two three. So again, you could put the credit on top It's not really going to disturb anyone. I mean, it's not going to be wrong Technically if you put the credit on top as long as you're in the credit column But we'll try to put this on the bottom and that's going to be the negative 80,000 that we will credit it to make this go to zero Then what's the debit going to be we're going to debit something 80,000 And of course that will be these three capital accounts in accordance with their prop with their profit sharing percentages So let's copy these three I'm going to highlight these three capital accounts for three partners copy it and put that on top So we're going to put it in J 29 right-click and paste one two three All right now we already we've already calculated the percentages that we need to debit 40 26 6 6 7 and 13 33 3 I'm going to recalculate them here just so we can see that one more time So what I'm going to do is say negative because I want to debit I'm going to say negative of this number that'll take the 80 flip the sign Then I'm going to multiply that 4k times K's capital count over here And enter and we come up with this same 40,000 notice it's a negative number here and it's a debit over here Because the debit is what's going to reduce the credit capital count on on this worksheet So this is a plus and minus worksheet. This of course is a debit and credit worksheet So then we're going to do the same thing for C. We're going to say C I'm going to say negative instead of equal to take that 80,000 and flip the sign Times and then we'll point to C's capital balance the thirty three point three three That'll give us the same 26 6 6 7 we had here note Then again that because we multiplied at times this cell Then it's going to be slightly different than if we just multiplied at times Point three three three because of rounding we're going to do the same thing for M I'm going to say M is a negative of this 80,000 times and then we're going to point to M's capital count this 1667 and Enter and that gives us our 13 3 3 3 which matches this number here do our debits equal our credits Let's let's take a look debits tie out to 80,000 equals the credit if we highlight all four of them The debits minus the credits equal zero All right, let's post this out and see what happens if it does what we expect it to do What do we expect it to do what we expect the gain? To go away and closed out to zero and we expect the capital counts to be decreased from where they started out to These numbers here. All right, let's see that and so we'll post K first. So here's K's capital count Here's case capital count on the trial balance We're going to post it to the entries column by saying equals then point to this 40,000. That's a debit This is a credit those are opposites meaning it's going to make it go down to 253,000 which matches our worksheet over here. We're going to post it see then here see that on the journal entry Here is C in the trial balance. We're going to post it to the middle column being P 29 Equals point to the 26 6 6 7. That's a debit. This is a credit. It's going to make the credit go down to 25 833 which matches our worksheet then we're going to go to M We're going to say M is here. Here it is on the trial balance. Here's what we're going to post it in the entries column Equals we're going to point to the 13 3 3 3. What's going to happen? It's going to bring this down to 153 6 6 7 matches our worksheet now. We're going to report the gain here Here's the gain or loss the loss in this case and we're going to post that here There's something in it therefore. We're going to double click on it go to the end of it and say plus And point to that 80,000 so we have 80 in it It's going to go down because we're doing the opposite thing to it and put it back in balance like so so now we've allocated this out and we can see that we have a our allocation of the Capital accounts to our partners matches our worksheet over here. We can now go to the next step What's the next step? We're going to pay off now the payable account We now have the cash to pay off the payable account. We'll do this in two ways We'll do it with a worksheet and then we'll come over here and do it with the journal entries and again Some people prefer one or the other we'll do it both ways so we can kind of see what it would look like So we're going to pay off the liabilities liabilities are going to be here We're representing liabilities, which is to simplify just one account to payable the liability account of 240 we've got to pay that with the cash now, so that's going to go down to 0 So we're going to pay off negative 240. This is going to go down to 0 What's going to happen to cash it will also go down because we're paying cash so negative 240 Like that then we're going to subtract this out now. Nope. We don't care about this stuff up here This is old news What we're looking at is the previous balance This is where we stand as of this point in time and then we're going to post our activity Then we're going to have our new balance. This is where we stand after the this activity of paying off the liability So let's let's do that calculation then we're going to say this equals and point to the 632 5 Plus and note that this is a negative number So we're going to say plus that negative number, which is a subtraction problem bringing us down to the 392 5 we're going to do the same thing over here in E. We're going to say this equals point to the 240 Plus this negative number and that will bring it down to zero and Then we're just going to bring these capital count balances down There's no effect on the capital accounts. So we're going to say that this it equals the same 53 tab See this equals the same 185 833 tab and then for M. This equals the same 153 667 and enter so here's our information we're going to do this with a journal entry now and do the same kind of transaction and we should end up with cash at the end of the day and a capital count distribution In this format, which is the same as where it was last time and of course payable will then be at zero So let's think about this in terms of the trial balance. So in the trial balance, what are we doing? We're paying off this liability with cash. So is cash affected? Yeah, we're paying cash to pay off the liability Cash has a debit in it. We're going to make it go down because we're paying it So we're going to do the opposite thing to it which in this case would be a credit So i'm going to copy the cash. We're going to skip a line We're going to skip another line so we can put it on the bottom and then we're going to put it down here on g 35 right-click and paste one two three So we're going to be in the credit side We're going to post the credit for the amount that's in the payable of the 240. So it's a negative 240 Thousand then we're going to debit 240 Thousand to the payable why because it has 240 thousand in it We're going to pay it therefore it needs to go to zero. How do we make something go to zero? We do the opposite thing to it which in this case is a debit therefore Let's copy this account in in 25 and paste it to j 34 Right-click and paste one two three All right, so then we're going to post this out. So we're going to post the payable. Here's the payable Here's payable on the trial balance and we're going to post it to the entries column in p 27 p 27 equals going to point to this 240 in accounts payable That's a debit. This is a credit those are opposites making this go down To zero and we are of course out of balance now. We're going to post the cash Here's the credit to cash. Here's cash up here. Here's where we're going to post it in p 25 There's something in there already therefore. We're going to double click on it We're going to go to the end of it say plus and then point to that 240 that's a credit. This is a debit therefore. It's going to go down put us back in balance down here There we have that now Note what we have left. We only have cash of 3925 and our capital balances Here all we need to do then is pay the cash To the capital balances So we will then pay that out Do you want to point out here that note that these capital balances that are left over may not are not In relation in proportion to the profit sharing percentages. Keep that in mind people if that's easy to get them that mixed up it's And that is because these are the profit sharing percentages meaning That uh when we allocate the profit it will be allocated in this format. However The uh partners can take out money at different Ratios, they don't have to follow this ratios for when they withdraw the money that is owed to them reflected by the capital accounts Necessarily depending on the partnership agreement, but so note that this balance does not necessarily reflect This ratio also note that we are now going to be allocating cash That cash we're going to be paying like a draw paying the draws out Which is different than when we allocate net income when we allocate net income We do allocate according to the profit sharing now. We're paying out the the amount of cash that is left We're going to pay out in accordance with whatever is owed represented by the capital accounts All right, so let's do that with a worksheet first. So we're going to do that over here Cash it's going to go to zero We're going to pay all of it out in accordance to these ratios here these capital account balances Therefore we're going to say negative three nine two five zero zero And then we're just going to pay it out in accordance here and of course these add up to Three nine two five. So we're just going to make this go to zero and again. We're worried about this balance Then we're going to do the transaction which is going to make everything zero And then we're going to have the new balance where everything is is zero So we're going to go here and say this is going to be negative three five three zero zero zero tab This is going to be negative one eight five eight Three three tab negative five one five three six six seven and enter So then we'll just add these up Oh undo undo We're going to be over here in c 32 Equals point to the three ninety two five plus the negative three ninety two five bringing us down to zero Same thing over here. We're in f 32 equals the 53 000 plus the negative 53 000 I'm going to select tab this time go to the next cell Equals we're going to pick the 185 833 plus the 185 the negative 185 833 tab equals the five 153667 plus the negative 153667 and enter So now we're at zeroes here. We've closed out. We have now liquidated We'll do the same thing over here. Let's see the same activity in terms of a trial balance So now we're left with cash. We're going to pay off the three capital accounts Cash has a debit balance. We need to make it go to zero because we're going to completely pay it off Therefore we're going to we're going to do the opposite thing to it. Which in this case is a credit So i'm going to right click copy now. I want to put it on the bottom again So i'm going to put it on the bottom and skip a line And then i'm going to skip three more lines one two three for the three partners And then so the three partners are going to go here and it's going to go on the bottom I'm in cell j 40 right click paste one two three And we're going to pay out the entire amount that is in cash of The 3925 therefore this will be a negative 3925 And we will then pay out the partners not in accordance with their profit sharing ratio But in accordance with what is owed to the partner represented by the capital account balances here So we're going to take these three partners are going to copy those right click and copy We're going to debit those accounts making them go down going to post that pink paste that to j 37 right click paste one two three And i'm just going to put the amounts that are in their capital accounts. Okay has 53 000 in the capital accounts. That's what we're going to debit c has this one eight five eight three three And m has in the capital account one five three six six seven Do the debits equal the credits if I highlight the debits they add up to 9 3 2 5 in the task bar. That's what the credit is so they look equal If I highlight the debits and the credits and subtract them they add up to zero Therefore the debits equal the credits and we're going to post out the k capital So here's k where something here's where we want to post it. There's something in it So i'm going to double click go to the end of it say plus Point to that 53 debit making this credit go down We will then post c so here's c here's c here's where we want to post it Double clicking go into the end of it plus this 185833 making this go down Then we're going to post m here. Here's m here. Here's where we want to post it double clicking Go into the end and plus pointing to the 153667 making this go down Then we need the last one. We're going to post the cash. Here's cash Here's cash. Here's where we want to post cash something's in it Therefore we will double click on it go to the end of it and plus We're going to point to post this 3925 bringing this down and we're back in balance note that now we have all zeros because we have now fully liquidated the partnership so recap of the process of liquidating the partnership We will first sell the inventory Then we will record the gain or the loss We will take that gain or loss and allocate it to the partners these three partners in this case in accordance with their profit sharing agreement We we will then take the cash that we have received pay off the liabilities that we owe in this case Just the one to accounts payable Then we'll be left with just cash and the capital accounts Then we'll pay off the capital accounts in accordance with what is owed represented by what is in the capital account Which doesn't necessarily Tie out which probably most likely will not tie out to the profit sharing percentages Why do we do it in that way? Because if we do not do it in that way, then it's very possible That we pay out too much to a partner and then we could sell the inventory for if we sell it for less than we thought We could be in trouble By the fact that we already gave out the money To a partnership and didn't realize that we were going to end up with a loss that Will cause us trouble. So that is that