GP/LP Distribution - Return of Capital (Pre-Carried Interest)
Recording a distribution to LPs representing a return of invested capital from a portfolio company exit or recapitalization proceeds, before any carried interest or performance fee threshold has been met.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| LP Capital Accounts (Pro-Rata per LP) | Equity (-) | 8,000,000.00 | - |
| Cash & Cash Equivalents | Asset (-) | - | 8,000,000.00 |
💡 Accountant's Note
Pre-hurdle distributions are purely a return of contributed capital and reduce each LP's capital account balance. No income or gain is recognized until the LP has received back all contributed capital (and preferred return, if applicable per the LPA). The distribution waterfall sequence must be checked before processing: (1) Return of Capital → (2) Preferred Return → (3) GP Catch-Up → (4) Carried Interest split.
Practitioner & Systems Framework
💻 ERP Architecture
Fund accounting systems must run the full waterfall calculation engine before posting any distribution. Each LP's capital account is debited by their pro-rata share. Generate LP distribution notices showing cumulative contributions, prior distributions, and closing capital account balance.
⚠️ Audit Flags
Auditors will recompute the waterfall calculation from scratch against the LPA provisions. They verify that no carried interest was paid before the preferred return hurdle was cleared (clawback risk).
📄 Required Documentation
Exit proceeds wire confirmation, distribution waterfall calculation workbook, LPA waterfall provisions, LP distribution notices, updated LP capital account statements.
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