Bookkeeping question

Submitted by HurryPrudent6709 t3_zz5jb3 in personalfinance

assume 100k needs to be split 2 ways between A and B.

If A prepaid 20 k of expenses, is the division 20 K to A leaving 80 K / 40k a piece?

or is it 70 k for A and 30 K for B , (50K - 20k)

And why ?

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wickedkittylitter t1_j29lt8w wrote

A gets $20k off the top and the remaining $80k is split between A and B.

A get a total of $60k and B gets $40k.

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HurryPrudent6709 OP t1_j29n2pv wrote

Thanks, that was my take as well. How do I explain this so they understand?

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wild_b_cat t1_j29o1mx wrote

Look at the math for each person. A put in 20 and got back 60. Their result is a gain of 40. B puts in zero and got back 40. Their result is the same as A's.

The way they're doing it (adding & subtracting 20) would make sense if A gave that money directly to B*.* But they didn't give the money directly to B - they put it into a shared asset. If A&B have shared ownership, then A was really giving half of that money back to themselves right away, leaving only a 10 imbalance that they were 'giving' to B. If you do it that way, then you say that B owes A that 10, so you subtract 10 from B's share and add it to A's share. And you wind up with the same 60/40 split.

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avalpert t1_j2a678q wrote

The real answer is it depends on the nature of the arrangement between A and B - was A covering prepaid expenses in lieu of B covering labor (for example),there are an infinite number of possibilities here, hopefully they have there shared understanding down in writing.

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HurryPrudent6709 OP t1_j2a6phw wrote

Let’s say it was the sale of a home , 20k was paid to a contractor by A. Homes sells for 100k

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avalpert t1_j2a86eo wrote

It would still come down to the nature of the arrangement between A and B - is the $20k a straight contribution of capital to the enterprise that is expected to be repaid, is it a form of purchasing their 50% share in the profits (with B doing so through other means), etc.

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HurryPrudent6709 OP t1_j2a712s wrote

The other scenario is let’s say A wants to be paid 5k for their time in prepping : cleaning home prior to sale. B agrees

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avalpert t1_j2a8a72 wrote

If A&B agrees, the $5k should be paid by the enterprise before splitting the remaining profit (just as they would for paying any other service provider).

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