Chapter 14 - Partnership Financial Statements

Question 1

Financial statements of a partnership

Answer 1

A partnership prepares the same type of year end financial statements as a sole trader business

The main difference is that a partnership appropriation account follows immediately after the statement of profit or loss to see how the profit or loss is shared amogst the partners.

Question 2

Partnership agreement

Answer 2

A partnership agreement will cover the following points:

Division of profits or losses between the partners

Parters salaries/ commission

Whether interest is to be allowed on partners capital and at what rate

Whether interest is to be charged on partners drawings and at what rate

Question 3

Partners capital accounts and current accounts

Answer 3

The capital account is normally fixed and only alters if a permanent capital increase or decrease. The current account is fluctuating and it is to this account that:

Share of profit is credited
Share of loss is debited
Salary is credited
Interest allowed on partners capital is credited
Interest charged on partners drawings is debited
Drawings in the form of cash, goods or services are debited