Unincorporated capital and current accounts in Silverfin

Introduction

Producing working papers and accounts for partnerships has always been slightly painful, especially when we have a larger number of partners. This mainly relates to how capital and current accounts entries are initially recorded and then displayed in the accounts. These notes focus on the more complex partnership entities - for sole traders, please follow this guidance but obviously there will only be one partner.

We have a significant range of partnerships for who we act with varied standard of bookkeeping and record keeping. We have therefore produced procedures for different type of partnership depending upon their bookkeeping set up:

1) All capital/current accounts movements are kept within one or two nominal account codes (so combined or one each for capital and current) and not split by partner.

2) Each partner has their own nominal account (or one each for current/capital) and all movements are recorded within that nominal code(s).

3) Each capital/current account movement (capital introduced, interest on capital) has their own nominal code but not split by partner.

4) Each partner has a set of codes for their current/capital account activity, so codes for Partner 1 – Capital withdrawn, Partner 2 – Interest on capital, etc.

This will then be made slightly more complex as some clients will calculate items such as interest on capital and profit share before we receive the records whilst for others we will perform the draft calculations (or alter the entries as profit is adjusted). There is then a mix of profit sharing arrangements involving salary/fixed profit share and objective or subjective profit sharing arrangements.

A solution for 1) above is not suitable for 4) as may involve too much analysis or allocation that has already been done.

Key reconciliations

The way Silverfin handles capital/current accounts revolve around 2 sets of reconciliations: the Partners and Partner Current/Capital Account summary reconciliations.

Partners summary reconciliation

This replaces the Statutory Information reconciliation in corporates. It is a key document and contains the name of the partners (and date of appointment and retirement). It also addresses how we deal with Salary and Profit sharing for that client. There are three main options in the drop down box:

There are two options within each of these reconciliations:  Account Templates and Mapped (ignore "Old Version" as this is outdated and being removed). The Mapped options relies on individual accounts mapping straight into this table (so option 4 above), whilst the Accounts Template option takes its data from the other reconciliations within the Preparation workflow (tying into accounting options 1 to 3 in the intro above, where further analysis will be done within these schedules). Where Mapped is selected it will automatically mark the individual nominal ledger reconciliations as reconciled (green circle) for all of the relevant current/capital accounts nominal codes and they then can (and should) be collapsed on the Preparation workflow (using the down arrow next to the Capital Accounts main title) to avoid them taking up screen space.

Approach

Before discussing our approach in detail, we have created a detailed standard nominal code structure within the PKF Francis Clark Chart of Accounts (CoA) allowing for direct mapping for up to 15 partners (and up to 999 in exceptional circumstances). Please see here for more details on the Partnership CoA and here for other details on the PKF CoA.   

For all different approaches belwo for partnerships, you will need to complete the Partners summary reconciliation as above with the names of the partners and then for each of the Partner Current and Partner Capital Account summary reconciliations, select the correct partner name from each drop down box allocating them to Partner 1,2,3 etc, being consistent with any nominal code mapping if relevant. You should also choose the relevant profit split option in the Partners summary reconciliation (%, Value, Mapped) as covered above. As previously noted, this is not needed for sole traders.

Then the recommended approach for each different type of partnership (or sole trader that is effectively treated as a partnership with one partner) is:

1) One capital/current nominal code

You should select "Accounts Analysis" in the Partner capital and Partner current accounts summary reconciliations.

Then, on each of the nominal ledger reconciliation(s), you should use the Partner/Sole trade current/capital account allocation template (via the Edit button and drop down menu if needed).

Then you should

a) Import all of the client nominal ledger data into the reconciliation (Actions/Import reconciliation data/from ledger {match the relevant fields}/Replace data).

b) Against the “Allocate all to a single partner:” question, select “Partner Split” if not selected.

c) Work through the data imported line by line allocating each line to a specific partner and type of activity (capital introduced, etc).

d) Process any journals needed to correct the items shown (and then including these on any reconciliation to get it to agree).

e) Ensure the total of the analysis still reconciles to the overall ledger balance and that each line is allocated to an activity and partner.

Do the above for both capital and current accounts if needed.

Finally, check that the table produced in Partner Current and Partner Capital Account summary reconciliations reflect the correct analysis and the opening and closing balances reconcile to the correct amounts. Also check that the profit split shown in the Partners summary reconciliation agrees to the correct profit for that period.

2) Each partner has their own nominal ledger code (or one for current and one for capital)

In this case you should map each partner to a different Silverfin Nominal Ledger code (being consistent for each one) so:

• Partner 1 Capital Account maps to 310910 Capital - Sole Trader / Partner 1
• Partner 2 Capital Account maps to 310920 Capital - Partner 2
• Partner 1 Current Account maps to 310950 Current Account - Partner 1
• Partner 2 Current Account maps to 310960 Current Account - Partner 2

etc. Please make sure that the order of the above mapping is then followed by the order of the partners that you enter into the Partners capital and current account summary reconciliation.

You should select "Accounts Analysis" in the Partner capital and Partner current accounts summary reconciliations.

Then you repeat above steps a) to e) for each of these reconciliations with one change – after importing the data, on the “Allocate all to a single partner:” question, select the name of the relevant partner for that nominal account from the drop down list. Therefore you will only be analysing the entries by their activity type.

Do the above for both capital and current accounts if needed.

3) Each current/capital activity type (capital introduced, drawings, etc) has their own nominal ledger code

In this case you should map each code to a different Silverfin Nominal Ledger code (being consistent for each one) so:

• Opening balance Capital account maps to 310910 - Capital - Sole Trader / Partner 1
• Opening balance Current account maps to 310950 Current Account - Partner 1
• Capital withdrawn maps to 320400 Repayment of capital - Sole Trader / Partner 1
• Drawings maps to 320300 Drawings - Sole Trader / Partner 1

etc. 

You should select "Accounts Analysis" in the Partner capital and Partner current accounts summary reconciliations.

Then you repeat steps a) to e) of 1) for each of these reconciliations analysing the nominal ledger activity by the relevant partner (so still choosing option “Partner Split” from the “Allocate all to a single partner:” question drop down box).

Do the above for both capital and current accounts if needed.

Then undertake the required profit split work for the partnership – see note at end of this briefing.

Finally, again check that the table produced in Partner Current and Partner Capital Account summary reconciliations reflect the correct analysis and the opening and closing balances reconcile to the correct amounts. Also check that the profit split shown in the Partners summary reconciliation agrees to the correct profit for that period.

4) Each partner has a set of codes for their current/capital account activity, so codes for Partner 1 – Capital withdrawn, Partner 2 – Interest on capital, etc.

The key here is the mapping exercise. You need to ensure that the codes are mapped to the right activity (Capital Introduced or Drawings) as per the Standard Chart of Accounts, but also that these are done in a consistent manner and order, so that, e.g. Mrs Smith is always analysed as Partner 1, Mr Jones consistently as Partner 2, etc.

This will need some attention as some partners may not have activity for that period so you may have nominal activity for, say, Capital Introduced for Partners 1 and 3 but these should not be mapped by accident to the first two codes for Capital Introduced 320000 and 320001 (which would be Partners 1 and 2). This will take some time but is only needed for the first year and thereafter whenever a new nominal code is used in the period.

You then select "Mapped" in the Partner capital and Partner current accounts summary reconciliations.