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

1. Pankaj Saikia-2021

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.
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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.
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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.
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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.
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9. Interest on Drawings made on
Regular Interval.
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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.
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11. Types of Capital Account
• Capital does not change
unless specifically added to
or withdrawn from it.
• Current Account is prepared
to record all recurring
transactions between partner
and the firm.
When
Capital is
Fixed.
• Capital keeps on changing
every year.
• No current account is
prepared and all transactions
taken place between partner
and the firm are recorded in
one account.
When
Capital is
Fluctuating
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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
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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.
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14. THANK YOU
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Pankaj Saikia-2021