Reporting changes in partnership capital accounts is similar to reporting changes for a.a limited liability trust. b.a corporate shareholder. c.a proprietorship. d.None of these choices are correct.
Business · High School · Tue Nov 03 2020
Answered on
c. a proprietorship.
Reporting changes in partnership capital accounts is similar to reporting changes for a proprietorship because both entities are pass-through entities for tax purposes. That means the businesses themselves do not pay income taxes; instead, the owners report and pay taxes on their share of the entity's income on their personal tax returns.
Like sole proprietors, partners in a partnership have capital accounts that reflect their equity in the partnership. These accounts are adjusted for additional investments, withdrawals, the partner's share of income or loss, and other factors. When there are changes, such as contributions or distributions, they are recorded directly in each partner's capital account, just as changes in a sole proprietor's capital are recorded in the owner's capital account.