Partnership accounts Flashcards
What is the main difference in partnership accounts compared to sole proprietorship accounts?
The bottom half of the balance sheet is adjusted to reflect multiple owners.
What are the two accounts each partner has in the second half of the balance sheet?
- Capital account
- Current account
What does the capital account represent?
The partner’s original investment in the partnership.
Can the capital account be withdrawn in normal circumstances?
No.
What does the current account show?
The partner’s share of the ongoing business profits and any drawings taken out over the year.
What does the Profit Appropriation Statement record?
How the profits of the business for the relevant period are divided between the partners
What is shown in the Appropriation Account?
The division of profits between the partners.
How is profit divided in a partnership?
- Salaries paid first (as specified in Parntership Agreement)
- Interest on capital - this is really an appropriation of profit. It is not treated as an expense.
- Remainder divided according to an agreed ratio
Should interest on capital be treated as an expense item in the P&L account?
No, it should be treated as an appropriation of profit.
What is the first allocation of profits in a partnership?
Salaries paid to partners.
Fill in the blank: Each partner has a _______ which shows their share of ongoing business profits.
Current account
