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Accounting for private use of shared property (50:50 equity split)

hi there,

A little puzzle here, looking for suggestions or at least something that will jog my brain towards further solutions.

I share a property 50:50 with a family member. In double entry accounting this could be:

Debit: Property asset account 100,000
Credit: Equity shareholders 50,000 + 50,000

Suppose we agree to pay a nominal rate to use the property privately. An alternative to actually transferring money could be to agree to let the equity split vary according to our respective use of the property, for example:

Private use of property for nominal rent of 2,000
Debit: equity shareholder account (the tenant) 2,000
Credit: retained earnings 2,000

Re-distribute earnings:
Debit: retained earnings 2,000
Credit: equity shareholder accounts 1,000 each

Balance on equity shareholder accounts is then 51,000 and 49,000 respectively.

Two questions:
1. is the working on the above example correct?
2. are there alternative ways to account for this? without any actual money transferring hands.  Apart from a private loan agreement.

Many thanks!

For my info: related question: http://www.experts-exchange.com/Other/Consulting/Q_28600158.html
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1 Solution
xeniumAuthor Commented:
Answer from Yahoo: https://uk.answers.yahoo.com/question/index?qid=20150318185503AALSaO6
Your concept is correct but your approach is very clumsy. As time passes and each owner uses the property, you constantly have to be redistributing capital. Eventually, it would be simpler if you recorded:

A uses the property 20 days at $100 per day
dr. Receivable from A -- 2,000
cr - - - Rent revenue - - - - -2,000

B uses the place for 5 days:
dr. Receivalbe from B -- 500
cr. - - Rent revenue - - - - 500

You rent the place to X for 7 days at $200/day
cr. Cash 1,400
cr . . . Rent revenue 1,400

You will also have expenses that should be recorded as such. taxes, maintenance, utilities. Some expenses are fixed, but some vary with use. Over time they will accumulate and you have to decide if A should be charged with more expenses than B because A used the property for 300 days while B used it for only 30 days. Or you may decide that the nominal rent charged to each is sufficient to cover the expenses, and thus simply deduct all expenses from all revenues to arrive at net income. There is nothing wrong in a simple situation like this to record all revenues and expenses in a single retained earnings account.

In the end, you would allocate the resulting retained earnings equally to each owner and then reduce each owner's capital by the amount recorded as receivable from him. That would be done maybe once a year instead of with each use of the property.

dr. A capital XXX
cr. - - -Receiable form A - - -XXX
xeniumAuthor Commented:
Answered on Yahoo Finance, Investing
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