Accounting for Partnership: Basic Concepts

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Partnership is defined as 'the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all'. It involves two or more persons joining han

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1. Two or More Persons (minimum 2, maximum 50) 2. Agreement (oral or written) 3. Business (carrying on legal business activities) 4. Mutual Agency (partners act as agents for each other) 5. Sharing of

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Partnership Deed is a written document containing terms of partnership agreement. Main contents include: - Names and addresses of firm and partners - Capital contribution by each partner - Profit and

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When partnership deed is silent: - Profits and losses shared equally by all partners - No interest on capital allowed - No interest charged on drawings - Interest on partner's loan @ 6% per annum - No

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Fixed Capital Method: - Two accounts: Capital A/c + Current A/c - Capital balance remains fixed - All adjustments in Current A/c - Capital A/c always shows credit balance Fluctuating Capital Method:

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Profit and Loss Appropriation Account is an extension of Profit and Loss Account that shows how profits are distributed among partners. It starts with net profit from P&L Account and makes adjustments

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Interest on capital calculation: 1. On opening balance: for full year 2. On additional capital: from date of introduction to year-end 3. On withdrawn capital: from beginning till withdrawal date, then

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When fixed amount withdrawn at beginning of each month: Average period = (12 + 0)/2 + 1/2 = 6.5 months Total drawings = ₹10,000 × 12 = ₹1,20,000 Interest = ₹1,20,000 × 8% × 6.5/12 = ₹5,200 Note: At