Partnership financial statements

Question 1

Can a partner salary be offset as expenses in arriving at profit?

Answer 1

No, partner salary is merely a device for calculating the appropriation of profit, it is not a salary in the normal meaning of the term

Question 2

What does appropriation of profit mean?

Answer 2

How the profits are to be shared amongst the partners

Question 3

How is profit shared if there is no partnership agreement?

Answer 3

1. Profits should be shared equally between the partners
2. No partner should receive a salary
3. No interest on capital should be allowed

Question 4

The profits allocated to each partner are _ to the partners current account

‘Debited’ or ‘credited’?

Answer 4

Credited

The current account is usualy a credit balance (think of it as the business owing to the partner). If the partner has drawn more funds than they have been allocated in profits, then the account is ‘overdrawn’ (similar to an overdraft) and the current account would be shown as a debit.

Question 5

The capital account shows the profit allocated to each partner

True or false?

Answer 5

False, the capital account shows the intial capital invested and the withdrawal of capital by a partner.