Partnership Accounts Flashcards
What is an appropriation account?
sharing statement’ for the profits or losses of the business
What goes on an appropriation account in order?
Profit for the year
Add: interest on drawings
Less: interest on capital
Less: salaries
Equals: remaining profit share
Share of profit
Total of shared profit
What should you do to the total figures on appropriation accounts?
Should equal and be double underlined
When was the partnership act created?
1890
When is the partnership act in effect?
When there is no partnership agreement
How are loans treated under the partnership act?
Loans to the partnership by partners will receive 5% interest
Is there interest on drawings under the partnership act?
None charged
Is there interest on capital under the partnership act?
None charged
How are partnership salaries treated under the partnership act?
Partners are not entitled to a salary
How are profits/ losses shared under the partnership act?
Shared equally
What is the income statement like for a partnership?
The same as a sole trader down to profit for the year then the appropriation account
How is the statement of financial position laid out for a partnership?
Same as a sole trader apart from the capital section that will contain the end of year capital and current account balances of each partner
What is the purpose of capital accounts?
Record the permanent contributions of partners
What would mean the capital account would have to change?
If structural change happens in the business
What are some examples of structural changes to a business?
Partner introduces or withdraws capital
A partner leaves
A partner joins
Assets are revalued
Profit sharing ratio is changed
What goes on the debit side of a capital account?
Balance b/d (owe business)
Good will written off
Decrease in revaluation
Capital withdrawn
What goes on the credit side of the capital account?
Balance b/d
Goodwill created
Increase in revaluation
Capital introduced
What are current accounts?
A more flexible sort of capital account
Record regular fluctuations in partners stake in the business
What side of the account is increase for capital and current?
Credit
What side of the capital/ current accounts would be decreasing value?
Debit
What goes on the debit side of the current account?
Balance b/d take more then they’re entitled to
Drawings
Interest on drawings
Share of loss
What goes on the credit side of the current account?
Balance b/d
Salaries
Interest on capital
Share of profits
Interest on loan
What are the main changes expected in a partnership?
Partner leaves
Partner joins
Assets are revalued
Profit sharing ratio changed
What is goodwill?
Difference between value of business as a whole and the net value of its separate assets and liabilities
What SFP says its worth and what it can be sold as going concern
When is goodwill used?
When a change in partnership takes place to ensure the partners benefit ( or otherwise) from the change in value of the business
What is the first step for goodwill?
Create goodwill to all partners in existence before change using original sharing ratio
What are the debits and credits for creating goodwill?
Debit= goodwill
Credit= capital
What is step 2 of good will in accounts?
Written off between all partners in existence after changes using new sharing ratio
What side would a loss in asset value go in the revaluation account?
Credit- goes to debit on capital (liabilities increased)
Where would a gain in asset value go on the revaluation account?
The credit side and the debit of capital
How do you balance the revaluation account?
Instead of balance c/d you split the amount between the partners using sharing ratio
What is the procedure for when a partner leaves?
Make all necessary adjustments to capital and current accounts
Transfers current account balance to capital account
Close capital account
How do you close a capital account?
Paying the partner from the business bank account
Transfer the balance owing into a loan account
What are split years?
When a change in the business occur partway though a accounting year
Split the year into before and after change and then do everything twice for time period (7 months and 5 months)
