Balance sheet not balancing

[Nanydugery]

I have a client whose balance sheet is not balancing and I believe it's due to entries under ownership.  They started the year with $1000 in owner's equity.  During the year they took draws from previous years and debited the owners equity account.  How can a company go from $1k in equity at the beginning of the year to -$52k in equity at the end?  Can you convert profits (or losses) to equity?  When they did the journal entries for the draws they debited owner's investment and credited Owners investment: owner's equity for each partner.  This doesn't look at all right to me but I don't know how to fix it.  Any help would be greatly appreciated.

[Anonymous_]

You need to post more details.

Where did the proceeds come from to make distributions? Presumably it was from profits, but then what about the cash account?

Also, are they using TurboTax Business? If not, where did you get the balance sheet information?

[Nanydugery]

The proceeds to make the distribution came from the cash account.  They were prior period profits which the partners left in the company bank account.  When they wrote the checks they debited owners investment but this seems incorrect to me.  Unfortunately I'm not sure what is correct.

We're using TT business and as the revenue is over $250k we need to provide a balance sheet.  It doesn't tie to the QBO balance sheet and my hunch is because of the incorrect JEs in the owners investment account.  

[Anonymous_]

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@Nanydugery wrote:

.....my hunch is because of the incorrect JEs in the owners investment account.  

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Yes, so you have to back through the entries and figure out where they went astray. Not fun.

[Nanydugery]

I know where the incorrect entries are; the issue is I'm not sure how to correct them.  What should I be debiting instead of owner's investment?

[Anonymous_]

I cannot see the balance sheet and, frankly, might not know precisely where to make the adjustment.

You probably need to make a correcting entry at this point.

[Rick19744]

I agree with @Anonymous_ in that we don't have the visibility to the details, however, the entry made doesn't match the true economics.

If the partnership paid out $$, this would have to come from cash.  No where in your facts is there an entry for this reduction in cash.

This distribution should have been:

Dr. Partner's capital (for each respective partner)

Cr. Cash

Not sure what the partner investment account is all about.

And of course you can convert profit and losses to equity.  That's where everything goes at the end of each period.  That's the closing entry.

[SweetieJean]

Client?  Turbotax is not licensed for use by paid tax preparers.