8: Other F.S.

Question 1

The following statements have been made by a colleague about accounting for partnerships:

Statement 1 Partners’ salaries affect neither the amount of net profit
available for appropriation, nor the partnership’s cash position

Statement 2 Interest on partners’ drawings affects the amount of net profit available for appropriation but not the partnership’s cash position

Identify whether these statements are true.

Answer 1

The correct answer is: Statement 1 is true but Statement 2 is false

Partnership salaries are appropriations of profit. They affect neither the partnership’s net profit
available for appropriation nor the cash position, so Statement 1 is true.

Interest on partners’ drawings is also an appropriation of available profit. It does not affect the amount of profit available for appropriation, so while it does not affect the cash position Statement 2 is false.

Salaries to employees, and interest on partners’ loans, affect net profit available for appropriation
while drawings, rather than interest on them, affect the cash position.