Account for the distribution of income to stakeholders

Some entity types need to account for the share of earnings between multiple stakeholders, such as beneficiaries in trusts or partners in a partnership.

This page explains the process for accountants and bookkeepers who are Xero partners to account for distributions to stakeholders using the default report templates in Partner Edition for the specific type of entity. If you don’t have access to report templates, you can customize the Profit and Loss and Balance Sheet reports in your client’s organization instead.

Xero locks the Current Year Earnings system account. This means that you can't directly 'clear it out' at year end to account for any distributions to stakeholders.

Instead, you can create an expense account in Xero and post journals from this account to the relevant stakeholder share of profit accounts. This shows the distribution of income on the Profit and Loss and Balance Sheet reports.

In this example, we’ll be using a to walk you through the process. However, you can easily adapt it for the distribution of income in a or company.

You want to attribute your current year earnings to 2 stakeholders, Mary and Peter.

  1. If they're not already set up, add accounts to your chart of accounts for the following:

    • An expense account for the distribution of income

    • accounts for the share of profits for both Mary and Peter

  2. Map report codes to your client’s chart of accounts as follows:

    • The account for the distribution of income to the Distribution to report code

    • Each of the share of profit accounts to the profit distribution report code for the respective beneficiary

  3. In your client organization, create and post a manual journal to transfer the current year earnings to the beneficiaries' accounts as follows:

    • Narration - describe the reason for the journal
    • Date - usually the last day of the financial year
    • First line - the full amount of the distribution coded to the expense account for the distribution of income
    • Next two lines - amount distributed to each beneficiary coded to the related accounts for their share of profits

When you run the and Balance Sheet reports for the period, you will see that the current year's earnings have been attributed to the beneficiaries.