Accounts for partnerships - C4

Question 1

Preparation appropriation account

Answer 1

Step 1 : Identify profit

Step 2 : Allocate or charge the following items
Allocate interest on capital
Allocate commission earned by partners
Charge interest on drawings

Step 3:
Sum down and calculate the ‘residual profit available for distribution’

Step 4: Allocate the share of the ‘residual profit available for distribution’.

Step 5: Complete the proforma

Question 2

Current accounts - Debit side , credit side

Answer 2

Debit - Drawings and drawing interest

Credit - Salary, commission, capital interest, Share of profit and loss (everything else basically)

Question 3

what are current accounts used for

Answer 3

each partners day-to-day transactions with the business

Question 4

what are capital accounts used for

Answer 4

used to record long term capital that the partners pay into the partnership

Question 5

Capital accounts - debit side , credit side

Answer 5

debit - c/d

Credit - b/d start of the year capital accounts
bank - what they contributed

Question 6

Generally will the partners have a credit or debit balance

Answer 6

Credit

If they have a debit that means they have been overspending

Question 7

New partner joins what happens

Answer 7

Capital will be credited to their capital account, debit entry will be bank account

Question 8

Retirement of an existing partner

Answer 8

Allocate their share of the profit

Partners current account needs updating

Final balance on their current account will transfer to capital account and the balance will represent the total amount owed by the partnership.

Question 9

Recording Goodwill debit or credit

Answer 9

Debit - General ledger

Credit - Partners capital account

Question 10

How is good will removed

Answer 10

Credit entry to goodwill account

Debit partners capital accounts

Question 11

Partnership Statement of Financial Position

Answer 11

Non current assets

Current Assets

Current liabilities

net current assets

net assets

Financed by: 
Capital Accounts (Always first!!!)
Current Accounts (Always second!!!)

Question 12

Prepare the capital accounts and current accounts for the two partners for the year. (Example Question)

Answer 12

Capital Account
debit - c/d
Credit - b/d - start of the year capital accounts
bank - what they contributed

Current Account
debit - drawings, drawing interest
Credit - everything else eg, Share of profit