Partnership Accounts | Jamb(UTME) Principles of Accounts

Partnership Accounts: Overview

1. Partnership accounts record transactions between partners.
2. They ensure accurate distribution of profits and losses.
3. Partnership accounts include capital, current, and drawing accounts.
4. Goodwill adjustments are recorded in partnership accounts.
5. They maintain records of interest on capital and drawings.
6. Partnership accounts show loans from partners separately.
7. Profit-sharing ratios guide the entries in partnership accounts.
8. Revaluation accounts record asset and liability changes.
9. Memorandum accounts handle specific partnership adjustments.
10. Partnership accounts ensure compliance with partnership agreements.
11. Partners' salaries and commissions are reflected in accounts.
12. Partnership accounts are essential for transparency among partners.
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Formation of Partnership

13. Formation begins with a partnership agreement (deed).
14. Partners agree on capital contributions.
15. Profit-sharing ratios are determined at formation.
16. Legal formalities depend on jurisdiction.
17. The name of the firm is chosen and registered if necessary.
18. Partners define roles and responsibilities.
19. Bank accounts are opened in the partnership name.
20. Initial capital is recorded in the capital accounts.
21. Goodwill may be valued at formation.
22. Partners agree on procedures for disputes and dissolution.
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Profit or Loss Account

23. The account records business income and expenses.
24. Revenue includes sales and service income.
25. Expenses include rent, salaries, and utilities.
26. Net profit is transferred to the appropriation account.
27. Non-operating incomes are included.
28. Depreciation reduces reported profit.
29. Discounts received increase income.
30. Bad debts are recorded as expenses.
31. Interest expenses are deducted from profit.
32. Correct classification ensures accurate profit calculation.
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Appropriation Account

33. It shows distribution of net profit among partners.
34. Interest on capital is appropriated first.
35. Partners' salaries are recorded in the appropriation account.
36. Interest on drawings is credited to the firm.
37. Remaining profits are shared as per agreed ratios.
38. Losses are also appropriated among partners.
39. Appropriation accounts reflect partner remuneration.
40. Partners' commissions are appropriated after net profit determination.
41. Reserve creation is shown in the appropriation account.
42. Undistributed profits are carried forward.
43. Drawings are adjusted separately, not in appropriation.
44. Appropriation account closes to partners' capital or current accounts.
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Partners’ Current and Capital Accounts

45. Capital accounts show initial and additional capital.
46. Fixed capital method keeps capital constant.
47. Fluctuating capital method records all movements.
48. Current accounts record share of profit or loss.
49. Drawings reduce balances in current accounts.
50. Interest on capital is credited to current or capital accounts.
51. Salaries are credited to partners' current accounts.
52. Interest on drawings is debited to current accounts.
53. Capital accounts record goodwill adjustments.
54. Profits increase partners' current accounts.
55. Losses decrease partners' current accounts.
56. Transfer of reserves affects current accounts.
57. Drawings are periodically transferred to capital or current accounts.
58. Closing balances reflect financial position of each partner.
59. Capital balances appear in the statement of financial position.
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Treatment of Goodwill

60. Goodwill represents firm reputation value.
61. It is valued at admission, retirement, or dissolution.
62. Goodwill is shared in profit-sharing ratio.
63. On admission, goodwill is credited to old partners.
64. Goodwill may be raised in books or adjusted privately.
65. Purchased goodwill is recorded as an asset.
66. Goodwill written off reduces partners' capital.
67. Hidden goodwill is implied from capital contribution.
68. Goodwill adjustments maintain fairness among partners.
69. Revaluation accounts record goodwill changes.
70. Premium for goodwill is paid by new partners.
71. Goodwill on retirement is credited to retiring partner.
72. Goodwill is excluded on conversion to a company, if specified.
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Admission of a Partner

73. New partner contributes capital to the firm.
74. New profit-sharing ratio is agreed upon.
75. Goodwill compensation is made to existing partners.
76. Revaluation of assets and liabilities occurs.
77. New partner's share of goodwill is adjusted.
78. Memorandum revaluation account may be used.
79. Old profits are transferred to old partners.
80. Partners' capital accounts are adjusted for new partner's entry.
81. Revised capital balances are agreed upon.
82. Profit-sharing agreement is documented.
83. Fresh contribution strengthens financial position.
84. New partner may bring in skills or expertise.
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Retirement of a Partner

85. Retiring partner settles account balances.
86. Revaluation of assets ensures fair settlement.
87. Goodwill is adjusted in favour of the retiring partner.
88. Capital is paid out or converted to loan.
89. Existing partners assume retiring partner’s share.
90. Memorandum revaluation accounts may be used.
91. Settlement terms are documented in agreement.
92. Retiring partner’s current account is closed.
93. Accrued profits are credited to retiring partner.
94. Partners' profit-sharing ratio is adjusted.
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Dissolution of Partnership

95. Dissolution involves settling all accounts.
96. Assets are sold to realize cash.
97. Liabilities are paid off.
98. Partners' loans are settled before capital.
99. Surplus cash is distributed among partners.
100. Losses are shared per profit-sharing ratio.
101. Dissolution entries close all accounts.
102. Realization account records asset sales and liabilities.
103. Goodwill is sold or written off.
104. Dissolution may be voluntary or court-ordered.
105. Dissolution agreement specifies terms.
106. Unrecorded liabilities are settled.
107. Partners’ guarantees are honoured.
108. Creditors are paid before partners.
109. Deficiencies in cash are borne by solvent partners.
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Conversion of Partnership to Company

110. Company takes over assets and liabilities.
111. Purchase consideration is agreed upon.
112. Revaluation of assets occurs before conversion.
113. Goodwill is adjusted prior to conversion.
114. Partners receive shares or cash in settlement.
115. Realization account records conversion transactions.
116. Accumulated profits are distributed before conversion.
117. Debtors and creditors are transferred to company.
118. Memorandum of Association is prepared.
119. Business registration shifts to corporate entity.
120. Legal formalities must be completed.
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Procedures for Formation of Partnership

121. Selection of business name.
122. Drafting the partnership deed.
123. Agreement on capital contributions.
124. Registration, if required by law.
125. Agreement on profit-sharing ratios.
126. Defining management roles.
127. Opening partnership bank account.
128. Obtaining necessary business licenses.
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Accounts Maintained for Partnership

129. Capital accounts for partners.
130. Current accounts for partners.
131. Profit and loss account.
132. Appropriation account.
133. Drawings account.
134. Goodwill account, if applicable.
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Effects of Admission & Retirement of Partner

135. Change in profit-sharing ratios.
136. Revaluation of assets and liabilities.
137. Adjustment of goodwill.
138. Redistribution of capital accounts.
139. Impact on decision-making power.
140. Revised partnership deed or agreement.
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