Partnership accounting

Partnership accounting

1. PARTNERSHIP ACCOUNTING PARTNERSHIP-FUNDAMENTALS

2. PARTNERSHIP-FUNDAMENTALS DEFINITION : According to section 4 of the Indian Partnership Act 1932, partnership is defined as ” the relationship between persons who have agreed to share the profits of a business carried on by all or any them acting for all”. Persons making an agreement to carry business for common purpose are called partners individually and firm collectively. PARTNERSHIP DEED: The document or the instrument, containing the agreement between partners, is known as partnership deed.

3. It contains the following clauses: 1.Name of the firm and nature of the business. 2.Names and addresses of the partners. 3.The duration, if any, of partnership firm. 4.The total capital of the firm and the share of each partner. 5.The ratio of sharing profits and losses. 6.Whether capitals are to be fixed or fluctuating. 7.Whether any interest is to be allowed on partner’s capitals. 8.Rate of interest on advances.

4. Contents Contd … 9.Whether any interest is to be allowed on drawings. 10.The amount of salaries or some allowance, if any, payable to the partners. 11.The amount which each partner can withdraw for his private expenses. 12.The provision relating to keeping of proper books of accounts. 13.The period after which the final accounts are to be prepared.

5. Contents Contd … 14.The audit of the accounts. 15.Admission of new partners and expulsion of the existing ones. 16.The method of ascertaining the share of goodwill of a partner on his retirement or death. 17.Whether decision in the case of Garner vs Murray is to apply in the case of insolvency of partner.

6. RULES APPLICABLE IN THE ABSENCE OF PARTNERSHIP DEED In the absence of an agreement, the under mentioned points should be need for proper accounting amongst the partners. 1.Profit sharing ratio : Profit and losses are to be shared equally amongst partners. 2.Interest on loan : On any loan (apart from capital) advanced by a partner, he/she is entitled to interest on the same at 6% per annum.

7. 3.Interest on capital : No interest is allowed on capitals. 4.Salary to partners : Partners are not entitled for any salary or other remuneration. 5.Interest on Drawings : No interest is to be charged on drawings. ACCOUNT S OF PARTNERSHIP FIRM: The net profit as shown by profit & losses account is transferred to another account called the Profit &loss Appropriation account. Interest on Capital loss losses Appropriation Account . INTEREST ON CAPITAL: Interest on capital A/C Dr To Partners’ capital or current A/C. [For Interest credited to partners capital or (current A/C s)] xxx xxx P&L Appropriation A/C Dr To Interest on capital A/C [For transferring interest on capital] xxx xxx

8. INTEREST ON DRAWINGS Partners’ capital/current A/C Dr To Interest on drawings A/C xxx xxx Interest on drawings A/C Dr To Profit & loss Appropriation/C xxx xxx

9. Partners salary or commission Interest on partner’s Loan Profit & loss Appropriation a/c Dr To Partner’s salary or commission a/c [For salary credited to capital or current a/c] xxx xxx Interest on partners A/C Dr To Partners Loan A/C xxx xxx

10. Profit and loss Appropriation Account : To P& L A/C (if there is loss) To Interest on partners capital To partners salary To Partners commission To interest on partners loan A/c To Net Profit Xxx Xxx Xxx Xxx Xxx Xxx xxxx By P&L A/C (Trading profit before adjustments as per deed) By Interest on drawings By Net loss (partners capital or current a/cs) xxx Xxx Xxx xxxx

11. Capital Accounts of Partners Fluctuating Capital PARTNERS CAPITAL A/C To Drawings ,, Interest on Drawings ,, Balance c/d - - xxx xxxx - - xxx xxxx - - xxx xxxx By balance b/d ,, Interest on capital ,,Commission ,, Share of profit ,, salary - - - xxx xxx xxxx - - - xxx xxx xxxx - - - xxx xxx xxxx

12. Fixed Capital Method Capital a/c Current a/c To balance c/d xxx xxxx Xxx xxx Xxx xxx By balance b/d xxx xxxx Xxx xxx Xxx xxx To Drawings To Interest on drawings To balance c/d - - xxx xxxx - - xxx xxxx - - xxx xxxx By balance b/d By interest on drawings By salary By commission By share of profit xxx - - - - xxxx Xxx - - - - xxxx Xxx - - - - xxxx