Partnerships (Operations) Part I Flashcards
When a partner is withdrawing permanently from the account, under what account is it debited to?
Partner’s Capital
When a partner is withdrawing temporarily from the account, under what account is it debited to?
Partner’s Drawing
If there is a net loss, what is the normal balance of the income summary and the partner’s drawings/capital?
normal debit balance; normal credit balance
The direct method is used for Partner’s Drawings. True or False?
False It is used for Partner’s Capital
The indirect method is used for Partner’s Capital. True or False?
False. It is used for Partner’s Drawings
What is the Direct Method?
Income or loss is closed directly to the Capital account of the partners
What is the Indirect Method?
Income or loss (income summary) is closed to the partners’ drawings account.
What is the use of the Indirect Method of closing the income summary?
When the partners want to keep the Capital account separate for investments and permanent withdrawals of capital.
The losses and profits shall not be distributed in mutual agreement with the partners. True or False?
False. It P&L must be in conformity with the agreement of the partners.
In the absence of an agreement, net income or net loss will be distributed equally to the partners. True or False?
False
A debit balance in the Income Summary account represents a net loss that will be distributed to the partners by CREDITING the partners’ capital account. True or False?
False. Debiting.
Once the partnership suffers a net loss, all partners’ capital accounts are expected to decrease at the end of the period. True or False?
False
Bonus, interest, and salary shares are first distributed to the partners before sharing in the final profit/loss. True or False?
True
A and B are partners. But only A is the managing partner. Both contributed assets. The best profit sharing ratio will be:
A. Equally
B. Salary to A and B, remaining profit to be shared equally
C. Salary to A, remaining profit to be shared equally
D. 1:1 ratio
C
Bonus is a special compensation usually given to a capitalist partner. True or False?
False
In the absence of any agreement, the industrial partner will not have any share in the net income and net loss. True or False?
False.
The direct method of closing the income summary is directly utilizing the Partners’ Drawing account. True or False?
False
Partners’ bonus amounts can be based on the income before taxes or after taxes, as well as income before bonus or after bonus. True or False?
True
Giving interest to a partner is a mechanism distributing profit in recognition of the partners’ investment in cash and or property. True or False?
True
A partnership profit and loss ratio applies to partnership profit:
A. After salaries and interest are deducted
B. Before salaries are deducted but after interest is deducted
C. After salaries are deducted but before interest is deducted
D. Before salaries and interest are deducted
A. After salaries and interest are deducted
