Accounting for Partnership- Fundamentals.pptx

Basics of Accounting for Partnership Firm. Useful for students studying in Class XII Commerce.

1. Accounting for Partnership Firm Pankaj Saikia-2021 FUNDAMENTALES FUNDAMENTALES

2. Meaning of Partnership Partnership is the relationship between two or more person who agrees to carry on a business and share the profit or losses of the business equally or in an agreed ratio. The business may be carried on by all the partners jointly or any one or more of them on behalf of all the partners. Pankaj Saikia-2021

3. Features of Partnership There must be two or more person. Agreement among partners. (Oral or Written) A business with profit motive. Sharing of profit and losses. Partners jointly shares unlimited liability. Relationship of Principal and Agent among the Partners. (Mutual Agency). Maximum number of members is 50 as per section 464 0f Companies Act 2013. Regulated by Partnership Act- 1932. Pankaj Saikia-2021

4. Partnership Deed Partnership deed is the set of terms and conditions on which the partners agrees orally or in written to carry on a business. A deed is not mandatory by any law but it is desirable to avoid and resolve any dispute or misunderstanding among the partners. Pankaj Saikia-2021

5. Contents of Partnership Deed. Name of the firm and nature of business. Name and address of the partners. Profit sharing Ratio. Interest on Capital and Drawings. Interest on Loan by partners to firm. Remuneration (salary or Commission) to partners. Contribution to Capital by Partners. Management of business and Audit. Pankaj Saikia-2021

6. Rules to be followed in absence/ silence of Partnership Deed. Profit and losses should be shared equally. No interest on capital should be allowed. Interest on capital should be paid out of profit only even if provided by deed. No interest will be charged on Drawings. Interest will be provided @ 6% per annum on Loan by partners to firm. New partners can be appointed only with the consent of all the partners Every Partner has the right to take part in management of business. All partners has the right to inspect the book of Accounts.. Pankaj Saikia-2021

7. Interest on Capital. Interest on capital is an appropriation (expenditure) of profit payable to partners by firm. Allowed only when it is provided by partnership deed or all the partners agrees to provide. No interest on Capital is paid if it is not permitted by Partnership Deed or the Deed is silent in this regard. It is paid out of profit only unless it is otherwise specified by the Partnership Deed. It is usually calculated on the opening balance of capital by taking in to account the addition to and withdrawal from capital. (Time Adjusted) Pankaj Saikia-2021

8. Interest on Drawings. Interest on drawings is an appropriation (income) of profit & loss payable by partners to firm. It is charged only when it is provided by partnership deed or all the partners agrees to it. No interest on Drawing is charged if it is not provided by Partnership Deed or the Deed is silent in this regard. It is charged irrespective of profit or loss in a particular financial year. It is calculated exactly on the amount withdrawn and from the from the time of withdrawal till the date of closing the accounts. Pankaj Saikia-2021

9. Interest on Drawings made on Regular Interval. Pankaj Saikia-2021

10. PARTNERS CAPITAL ACCOUNT. In accounting of Partnership firm preparation of Capital Account of partners is a special aspect. Capital account is started with Opening capital of Partners (usually Credit Balance). Addition to Capital, Interest on capital, Share of profit, Salary or commission to partners are the common items Credited to Partners Capital Account. Withdrawal of capital, Drawings, Interest on Drawings, Share of loss etc. are common item Debited to Capital Account of Partners. Capital Account can be maintained as Fixed as well as Fluctuating. Pankaj Saikia-2021

11. Types of Capital Account Pankaj Saikia-2021

12. Fixed Capital Account Fluctuating Capital Account Two separate Accounts are maintained for each Partner i.e. Capital Account and Current Account. Only one Account i.e. Capital Account is maintained for each Partner. Adjustments like Drawing, Interests, Salary, Commission, Profit or Loss etc. posted to Current Account All adjustments like Drawing, Interests, Salary, Commission, Profit or Loss etc. posted to Capital Account Balance of Capital remains fixed over years. Balance of Capital remains changing every year. Fixed Vs Fluctuating Capital Account Pankaj Saikia-2021

13. P/L APPROPRIATION ACCOUNT. Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It starts with the Net Profit (Credit Side)/Net Loss (Debit Side) as per Profit and Loss Account. Pankaj Saikia-2021

14. THANK YOU TEST YOURUNDERSTANDINGS- Follow the link for MCQ Test. https ://forms.gle/eTzZDNk7C3QtKL7eA Pankaj Saikia-2021