Partnership Accounting

Question 1

Partnership Formation

Answer 1

• Contribution of Cash or Property to Partnership

Journal entry: Partnership formation (Contribution of cash/assets)
Cash Debit
Asset Debit
Expense Debit
Partner’s capital account Cash

-Contribution of liability to Partnership

Journal entry: Partnership formation (contribution of liability)

Partners capital account Debit
liability Credit

Question 2

Allocation of Partnership Income

Answer 2

-As per agreement
- If no agreement: equally
- Partnership income is distributed in the following order:
* Interest on capital
* Salaries & bonuses
* Remaining Profits

Journal Entry: Allocation of Partnership income
Interest on Capital Debit
Salary Debit
Profit Debit
Partners Capital Account Credit

Question 3

Admission of a New Partner in Partnership: New Partner’s contribution is equal to their share of the net assets of the partnership

Answer 3

Journal Entry: admission of partner
Cash or asset Debit
Partners Capital Account Credit