Accounting System to Track Member Capital Accounts in
Multi-Member LLCs Taxed as Partnerships

Though there is no tax at the entity level and profits and losses "pass through" to the individual returns filed by the member

An LLC with multiple members must file a partnership tax return (Form 1065) to track the equity held by the members.

The LLC must create new equity accounts for each member as follows:

• Member A Contributions
• Member A Draws
• Member A Equity

• Member B Contributions
• Member B Draws
• Member B Equity

Retained earnings (profits) each year are zeroed out into each member's equity account in his or her proportionate share.  The contributions and draws for each year are also closed out to the equity account for each member and begin anew each year.

These closing entries are best done with a January 1 date so last year's reports remain correct if you are looking at them later on.

The above member's equity activity is shown on their individual forms K-1 that they receive from the LLC when the tax return is done. They show the member's beginning equity balance, any contributions, draws and their share of the income and an ending equity balance.