Partnerships (Copy)

Partnerships – Cheat Sheet

1. Statement of Profit or Loss

• Sales Revenue: Total income from selling goods or providing services.
• Cost of Sales: Direct costs of producing goods or services sold.
• Gross Profit:

Gross Profit = Sales Revenue - Cost of Sales

• Operating Expenses: Indirect costs like rent, utilities, and wages.
• Net Profit:

Net Profit (or Loss) = Gross Profit - Operating Expenses

2. Appropriation Account

• Interest on Capital:

Interest on Capital = Partner’s Capital * Interest Rate

• Salaries to Partners: If specified in the partnership agreement.
• Profit Distribution: Remaining profit is divided according to the profit-sharing ratio.

3. Statement of Financial Position (Balance Sheet)

• Assets = Liabilities + Owner’s Equity
• Current Assets: Assets that are used or converted to cash within one year.
• Non-Current Assets: Assets that are expected to provide economic benefits for more than one year.
• Liabilities:
  • Current Liabilities: Debts due within one year.
  • Non-Current Liabilities: Debts due after one year.
• Owner’s Equity = Total Capital (Partner’s Capital + Retained Earnings)

4. Capital and Current Accounts for Partners

• Capital Account: Records initial and additional capital contributions.
• Current Account: Records profit shares, drawings, interest, and adjustments.

5. Partnership Agreement

• Profit-sharing Ratio: The percentage of profits each partner receives.
• Interest on Capital: Partners receive interest on their capital contributions.
• Salaries to Partners: Salaries may be paid to partners if agreed.
• Interest on Drawings: If applicable, interest may be charged on drawings.

6. Provisions of the Partnership Act 1890

• Partners’ Salaries: No salary unless specified.
• Division of Profits: If no agreement, profits are divided equally.
• Interest on Capital: Not paid unless specified.
• Interest on Drawings: Not charged unless specified.