Accounting For Partnership-“Partner's Current Account"

September 7th, 2006 Comments off
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The capital account of the partners are normally fixed throughout the partnership.

However, each partner’s profit, loss, drawing, interest on drawing, interest on capital and salary are taken up into a separate Current Account.

Let’s look at a typical Partner’s Current Account:

CURRENT ACCOUNT

DEBIT SIDE

CREDIT SIDE

Drawings- cash, goods ,etc

Interest on Capital

Interest on drawings

Share of profits

Salary of the partner

(1) Withdrawal/Drawings in the form of CASH

Accounting entries:

Credit: Cash $11,000

Debit: Withdrawal A/c of A $6,000

Debit: Withdrawal A/c of B $5,000

Being withdrawal of cash by Mr. A & Mr. B

(2) Withdrawal/Drawings in the form of GOODS

Here, it is important that the partners agree to the valuation used for the withdrawal in the form of goods namely whether it is valued at cost or selling price.

Accounting Entries:

If the goods are valued at cost:

Debit: Partner’s Withdrawal account

Credit: PURCHASES a/c

Example:

Debit: Withdrawal a/c-Mr. A $10,000

Credit: PURCHASES a/c $10,000

Being record of withdrawal of goods at cost price for personal used by Mr. A

If the goods are valued at selling price:

Debit: Partner’s Withdrawal account

Credit: SALES a/c

Example:

Debit: Withdrawal a/c-Mr. A $10,000

Credit: SALES a/c $10,000

Being record of withdrawal of goods at selling price for personal used by Mr. A

(3) Withdrawal from INVESTMENT

Normally, withdrawals are made from profit. However, withdrawal can also be made from Investment with the agreement of all the partners. Preferably, it’s preferable to specify this type of withdrawal in the partnership’s agreement.

This type of withdrawal from Investment is not the normal withdrawal like cash or goods. It’s need to be DIRECTLY debited to the partner’s CAPITAL account.

(a) Withdrawal from Investment in the form of Cash:

Debit: Capital a/c of Mr. A $10,000

Credit: Cash $10,000

(b) Withdrawal from Investment in the form of Goods at Cost Price:

Debit: Capital a/c of Mr. A $10,000

Credit: Purchase a/c $10,000

(c) Withdrawal from Investment in the form of Goods at Selling Price:

Debit: Capital a/c of Mr. A $10,000

Credit: Sales $10,000

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Financial Accounting

 
 

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