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Unit 4 Financial Accounting Book vs. Tax Capital Accounts

Unit 4 Financial Accounting Book vs. Tax Capital Accounts -...

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Financial Accounting and Maintenance of Capital Accounts
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Objectives Distinguish between tax capital and book capital accounts and understand what each represents Distinguish between capital accounts inside basis and outside basis Understand how various transactions impact capital accounts
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Tax vs. “Book” Capital Accounts Book capital accounts reflect the FMV of the property at the date of contribution and distribution. Tax capital accounts reflect the adjusted basis of the property at the date of contribution and distribution.
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What are Book Capital Accounts For? To serve as a scorecard to keep track of the partner's equity interest in the partnership. His share of proceeds on liquidation if the partnership sold all of its assets for their book value paid off its creditors distributed the net proceeds to the partners.
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Example Dave and Donna form an equal partnership to operate an orchard. Dave contributes $100,000. Donna contributes
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