 In this discussion we will discuss the discussion question of discuss the steps and order of steps in a partnership liquidation So when we have a discussion question like this first We might want to define what a partnership liquidation is because it does it's not as apparent as it might seem the liquidation Terminology may be a little confusing it basically means that we're going to close the partnership So the partnership is going out of business the partnership is going to be no longer in existence How do we wind this thing down and this process can seem more? Like it'd be an easy thing to do But it can be a confusing thing to do and we want to do it properly because if we don't do it properly It can cause a lot of problems. They could cause a lot of more Not good feelings For then it then it has to be at this point in time because in any case if the partnership is liquidation It's probably not the best the time period possibly depending on the circumstances in any case we want to just make sure that we do the liquidation process from an accounting standpoint as Good as we can as properly as we can in order to do so we've got to go through these steps It's also no it's important to note too that the liquidation only happens You know one time when I used to learn this used to think well Why do we spend so much time on this liquidation process when it's only you know? Hope it's only happens when the partnership basically dies Why do we need to spend a lot of time on it and note that it's going to be? It's really important just to know the capital account So if you do that if you know the liquidation process you get a really good idea the partnership capital accounts It's and and so it's and you just get an idea of a better idea of the trial balance and a better idea Just how to you know we get we've gone through the creation of different types of businesses But we know we haven't gone through it the termination the taking apart piece by piece So really it's just like putting something together and taking something apart to see how it works So if we've put things together We've never really taken them apart and so taking it apart helps us not only to take it apart But know how to run the process during the process so if we go through the the liquidation process There's really a few steps. We know we want to do one We want to sell all of the assets first is typically what we're going to end up doing then We want to allocate any of the gains of those assets to the if there's gains or losses on those sales to the proper capital accounts in accordance with their profit sharing agreements if there are losses that result in negative capital accounts Number two if there are losses that result in negative capital accounts Then we want to deal with that at that point in time Meaning we're hoping that the partner that has a negative capital account due to a loss on the sale of the assets Which may very well happen Because we're kind of doing a liquidation clearance sale meaning we might not get as much money for the assets that We had assumed or was on the books for and therefore we have a loss Once we allocate that loss to the partnership accounts a partnership account may very well turn negative meaning Instead of the partnership Instead of the partnership owning the partner money the partner may owe the partnership money and in that case We want to take care of that. We want to say, okay Let's go to this partner and see if we can get paid to the partnership to properly close the partnership And that may or may not happen at that point in time That may be a difficult conversation because of course when you go through the closing process you know, we're trying to terminate the partnership and get away from this thing and Typically people won't want to pay the partnership. They want to they want to close the thing out So if we can't get paid for whatever reason and we won't go into the to the legal Terminology here and you know what the steps are for the remaining partners But it may come to the fact that it's not worth You know pursuing a particular partner who won't pay that negative balance Then we have to allocate that negative balance to the other partners involved to continue the closing process So that would be and and then after we do that then we want to do we want to pay off all the liabilities and Then we can then we'll be left with just cash and partnership capital accounts and we can pay those off So that that whole thing with the negative capital account possibility Really kind of confuses things. So if there if there isn't that case Which hopefully there won't be Then the process would just be we're going to We're gonna sell all the assets get the cash for it We're going to then if there's no capital accounts that are negative will pay off all the liabilities and Then once the liabilities are paid off, then we can basically allocate to the partners So we sell all the assets we allocate the gain or loss to the partnerships if there's no negative capital accounts, which hopefully typically there wouldn't be then we pay off the The liabilities and then we pay off that the balances to the partners so Why would we do it in this way? Because it really lessens the likelihood of having a negative capital account so in other words if we're liquiding if we're liquidating the partnership and we as accountants are kind of an involved in you know Regulating this process if one partner comes to us and says hey, I've got a partnership capital account of $30,000 I want I want that money now You know I want it now and you would think if everything went well on the partnership Then we should end up with $30,000 to pay that individual But if things don't go well for example if we sell the assets for less than their book value Then we'll end up with a situation where we won't have that $30,000 at the end And so what we don't want to do is start paying the partners Before we sell the assets because we don't really know how much cash we're gonna have Until we sell the assets so we got to go through the steps So we so if we're the ones that are kind of regulating this thing we've got to say hey, you know We're not paying any any significant amounts out to any partners until we go through the whole liquidation process Which is to sell the assets and then you know allocate that net income to the partners See if there's any negative balances if there was a loss for any partner capital accounts and deal with that Then we'll pay off the liabilities and then we'll pay the remaining amounts to the partnership in accordance with whatever is left over And whatever the partnership balances are after this closing process has taken place this liquidation process has taken place