Partnerships

Question 1

Capital

Answer 1

The amount each partner must contribute to the business. In Partnerships capital is usually fixed and will not be withdrawn until a partner leaves the partnership.

Question 2

Profit Share

Answer 2

This determines how the profit figure will be split between the partners.

Question 3

Salaries

Answer 3

These are not expenses which go through the P/L as an employees salary does. They are an -allocation of profit-, meaning it is a way for a partner to get a fixed amount of profit for the year.

Question 4

Interest on Capital

Answer 4

Partner may receive interest on the capital the inject into the business. This again is an allocation of profit and a way for a partner to receive a fixed amount of the profit before the split under the profit sharing ratio.

Question 5

Drawings

Answer 5

This is the value of the cash of goods withdrawn from the business by a partner.

Question 6

Interest of Drawings

Answer 6

Partners may pay interest on drawings they have taken out of the business. This is part of the profit allocation reducing what the individual partner receives and effectively putting more profit back into the pot for allocation under the profit sharing.