How to Figure Out Flow Through on a Profit and Loss Statement

A flow-through entity is a business organization where profits and losses flow from the organization to either partners or shareholders. These organizations are classified as either S Corporations or partnerships. If you have a profit and loss statement, you can calculate the amount that flows through to the owners if you also have the ownership agreement. These agreements define the terms of how the organization pays out its profits to the owners.

Locate the partnership agreement or the bylaws of incorporation. In this, you need to find how the organization distributes profits and losses. For example, if you have a partnership, with two partners, the partnership agreement may state you will split profits and losses 50 percent to each partner. This is the allocation percentage.

Find the profit or loss on the profit or loss statement. In the example, assume your partnership had $26,000 of losses in the year.

 

Multiply the profit or loss by the allocation percentage. In the example, $26,000 times 50 percent equals a flow through of $13,000 of losses to each partner.

 

About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.