Updated July 29, 2015
LLC and LLP Financial Statements and General Accounting Chicago Illinois
The financial statements of a limited liability company (LLC) or partnership (LLP) are generally the same as the financial statements of other businesses with one important difference.
These entities, from a taxation standpoint, are partnerships. As such, the equity side of the balance sheet is different because it shows ownership. When you don’t have one owner, when various owners own different percentages of the company, this can become quite difficult.
One of the most common reasons for legal actions and lawsuits between partners is accounting being completed improperly. If the accountant that you have chosen is not experienced and knowledgeable in how to do accounting for this type of business entity, it can cost the partnership enormous amounts of money in legal fees.
These issues also become complicated when we are dealing with single member LLC’s and LLP’s. The entire concept of having one person be a “partnership” by themselves runs contrary to reason. How can you have a partnership with only one person? But, from an accounting standpoint, these single member partnerships have become quite common given their increased abilities to write off losses from passive enterprises such as real estate ventures.
Further, basis issues in partnerships are also commonly done wrong. In general terms, a basis is what a person paid for something. It’s what we use to determine taxes like capital gains when an individual partnership interest is sold. If the basis is computed incorrectly, then the gain as well as any tax on the gain will be wrong as well. Also, depending on the type of company and how it has been capitalized, there is such a thing as inside and outside basis in the assets of a partnership. Many of these issues will need to be reflected on the financial statements and the tax returns in order for there to not be problems between the partners.
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.