Setting up the Income Allocation accounts within General Ledger

This support note applies to:

AO Classic General Ledger (AU)

Article ID: 30114

Each entity type within General Ledger has income allocated differently. For example

a company's profit is retained
partners receive a percentage or amount of profit
beneficiaries or members receive a distribution.

When you create your client based on the standard templates, the income allocation definition is created automatically. If you create your own income allocation amounts, you may need to customise your reports for the income allocation account change.

To set up the Income Allocation accounts

Go to your clients' General Ledger and go to General Ledger > Income Allocation Definitions. The Income Allocation Definitions window appears.
If an account appears in this window, delete the account:
1. Select the accounts and press F8 on your keyboard. A confirmation window appears.
2. Click Yes. The account is deleted.
Press F4 on your keyboard. The New Income Allocation Definition window appears.
Enter the account for your entity type and click OK. The account is added with 100% allocation.

For details and examples see Entity type income allocation definitions below.

Entity type income allocation definitions

Sole Trader

Income Allocation Definition

Account 501 / 02 100%

Profits are allocated automatically to the proprietor's share of profit account, 501/02.

Partnership

Income Allocation Definition

Account 501 / 02 50%

Account 502 / 02 25%

Account 503 / 02 25%

Profits are allocated automatically to the partner's share of profit account, 50X / 02.

The amount or percentage of the allocation is determined by the percentage stated within Income Allocation Definition.

The partnership template creates the ledger with two partners as the default setting with 50% as the income allocation split. If you have more partners or the income percentage is incorrect, you can correct this in the To set up the Income Allocation accounts procedure above.

Company (Small & Large) - Incorporated Association

Income Allocation Definition

Account 639 100%

Profit is automatically allocated to account 639.

Trust

Income Allocation Definition

Account 500 / 02 100%

The profit/loss is allocated to account 500 / 02. Journal entries are then necessary to distribute profits.

For example, the entry for five beneficiaries and $100,000 distributable profit would be:

Account		$ Dr	$ Cr
500 / 03	Profit Earned This Year	100,000
501 / 02	Beneficiary #1 Share of Profit		25,000
502 / 02	Beneficiary #2 Share of Profit		15,000
503 / 02	Beneficiary #3 Share of Profit		30,000
504 / 02	Beneficiary #4 Share of Profit		10,000
505 / 02	Beneficiary #5 Share of Profit		20,000
Being Distribution to beneficiaries for the yr ended 30/6/XX

Upon year end rollover of the ledger, accounts 500 / 03 and 500 / 02 are added to account 500 / 01, which is a balance forward account.

The net effect of this process is that the balances of these accounts cancel each other out. If a balance remains, like a loss, this is added to account 500 / 01 Accumulated Profit (Losses) Bought Forward.

Superannuation Fund

Income Allocation Definition

Account 550 / 02 100%

The profit/loss is allocated to account 500 / 02. Journal entries are then necessary to distribute profits/losses.

For example, the entry for four members and $100,000 distributable profit would be:

Account		$ Dr	$ Cr
550 / 03	Distribution to Members	100,000
551 / 02	Member #1 Allocated Earnings		45,000
552 / 02	Member #2 Allocated Earnings		20,000
553 / 02	Member #3 Allocated Earnings		30,000
554 / 02	Member #4 Allocated Earnings		5,000
Being Distribution to members for the yr ended 30/6/XX

Accounts 550 / 03 and 550 / 02 are added to account 550 / 01, which is a balance forward account.

The net effect of this process is that the balances of these accounts cancel each other out. If a balance remains, like a loss, this is added to account 550 / 01.