Partnerships Flashcards
Define a partnership
A business in which to or more people work together with the goal of making a profit
Suggest four REASONS for multiple ownership
- CAPITAL required exceeds what one person can provide
- EXPERIENCE and management ability required is more than found in one person
- SHARE management tasks
- Partners are often FAMILY
Name five CHARACTERISTICS of a partnership
- Formed to make a PROFIT
- Must obey ownership LAW
- Minimum 2 max 20
- Each partner must pay a share of DEBTS
- UNLIMITED liablility
Name four ADVANTAGES of a partnership
- Additional FINANCE available
- Each partner’s skill, knowledge and XP can be used to the best advantage
- Management responsibilities can be SHARED
- RISKS involved are shared
Is a partnership a good form of business for a tranding business?
No, but it is good for a service business
Name five DISADVANTAGES of parterships
- PROFITS shared
- Joint policy DECISIONS must be followed by all parters
- An ACTION by one partner affects all the others
- Decisions take LONGER
- DISAGREEMENTS can occur
What would usually be found in a partnership agreement?
- Procedures for ADMISSION of new partners
- SHARING of profits and losses
- Rate of INTEREST on capital
Explain the importance of the APPROPRIATION account
Shows how the net profit is SHARED between partners. Also shows all APPROPRIATIONS required by the partnership agreement
Explain the importance of the CURRENT account
Partner’s PERSONAL account. Anything to which the partner is entitled is CREDITED
What is a FIXED capital account?
- Capital and current accounts are kept SEPERATELY
- Capital account fixed by INVESTMENT
- Current account consists of PROFITS, interests, salaries, etc
What is a FLUCTUATING capital account?
- Profits, salaries, etc are CREDIT in the capital account
- Drawings and interest thereon is DEBITED
What does the Partnership Act state?
- Profits and losses shared EQUALLY
- No interest on CAPITAL
- No interest on DRAWINGS
- No SALARIES
- Money in excess = 5% interest PA
