Earlier article described how a loan can occur in a partnership. Interest on loans from a partner is accounted for as an EXPENSE in the Profit & loss account and NOT as an appropriation of profit even though the interest is added to the current account of the partners.
In the event an existing or previous partner make a loan to the partnership, he or she becomes a creditor to the partnership. Some reasons for such loans being made are: Partnership is short of cash and the existing partners are not willing to contribute further any capital New partnership is not able to repay … Read more
The main differences are: The balance on the capital account normally remains static from year to year Whereas: The current account is continually fluctuating up and down as a result of the partnership making a profit or loss, partner taking out their drawing and interest on capital
In a partnership, it is usual for each partner to accept full liability for the debts of the partnership. In the event that one partner is unable to pay his share of the debts in full, the other partner must take on the balance himself as his own personal liability. This is known as “ … Read more
Tabulate below the usual accounting entries for accounting for partnership:- Debit Credit SALARY Appropriation Account Partners’ Current Account INTEREST ON CAPITAL Appropriation Account Partners’ Current Account INTEREST ON DRAWINGS Partners’ Current Account Appropriation Account SHARE OF PROFIT Appropriation Account Partners’ Current Account SHARE OF LOSS Partners’ Current Account Appropriation Account DRAWINGS Partners’ Current Account Drawings … Read more
Major differences are: The funds put into the business by each partner are shown differently The net profit must be appropriated by the partners, ie. Shared out according to the partnership agreement. These appropriation s of profit must be shown in the partnership accounts.
When the amount of a partner’s share of profit is guaranteed by the other partners and when his or her actual share of profit amounts to LESS than the amount guaranteed, we should: Step 1: Debit: Appropriation account with the guaranteed amount Credit: Partner’s Current Account Step 2: Any remaining profits will then be shared … Read more
Interest is imposed on drawings in excess of normal requirement to discourage excessive and unhealthy withdrawal of vital funds in a partnership. How to compute or calculate interest on drawing: Interest is calculated FROM the date the amount is withdrawn TO the end of the financial year. Illustration: A partnership’s year ends on 31 st … Read more
Three methods namely: A FULL year’s depreciation is charged in the year of purchase ignoring the dates during the year that the assets were purchased. No depreciation is charged in the year that the assets were disposed of irrespective of how many months they were in use No depreciation is charged in the year of … Read more