Lecture Nine Flashcards
sole traders have how many owners
1
what is a partnership
an agreement between 2+ more individuals to share the ownership of a businesses (without legal complications of a companies)
Adv in partnership
1- partners share in investment in & risk of the business , dont have to do it all urself
2- they can pool their time,skill,experience and contacts, = spread responsibilties and skills
Disadvantages of partnerships
-control is diluted & profits must be shares
-there may be disputes and argue
-partners themselves are normally jointly and severally liable (have to pay mistake of the partner- both r liable )
what do partners have
unlimited liabilities
what does unlimited liability mean
owners and the businesses are one. the owners are liable for the business. e.g. if it goes bust, they have to pay the debt
whats different about the partnership SPL compared to the sole trader
the SPL is exactly the same
HOWEVER:
net profit on the SPL can be shared out (appropriated) between partners
= theres an appropriation account that follows SPL
=the rules on how to share is in the partnership agreement
how would u appropraite (share) the net profit equally-
- interest on drawings
- salaries
- interest on capital
- profit sharing ratio
what is meant by interest on drawings when sharing out the net profit
= the partners will be charged with a % on money they take OUT during the yeaer
what is meant by salaries when sharing out the net profit
some partners may be entitled to recieve and FIXED amount of profit a year
what is meany by interest on capital when sharing out the net profit
partners will normally be entitled to recieve a % on their investment into the business
what is meant by profit sharing ratio when sharing out the net profit
the remaining (residual) profit after- will be shared through a agreed ratio
what does the residual profit mean
remaining profit
whats different about the sole trader SFP and the partnership SFP
instead of opening cap: HAVE a capital account
instead of profit for year+ drawings = have a current account
do the capital account change?
partners capital account rarely change = always have a credit balance
-cap wont change often, e.g. only invest when start
will the current account change
partners current acc can fluctuate continously, & can be a debit of credit balance
why would the current be a debit account
-if take more out then have=debit
what is the current account used to record
profit share & drawings
partners current acc headings
Openig balance
Add interest on capital
Add Salary
Add residual profit share
Less Interest on drawings
Less Drawings
Closing balance
what happens to the SFP when a partner may make a loan to the partnership
SFP- such a loan = liability (non or current)
- not part of capital/current balance
what happens to the SPL when a partner may make a loan to the partnership
Interest on the loan is expense (i.e before calcuating net profit)
-Not an appropriation of net profit
