Accounting for Partnerships

1. Types of Business Organizations
As to Ownership
Sole
Proprietorships
Partnerships
Corporations Cooperatives

2. Accounting For Partnerships
Basic Considerations and Formation

3. In a contract of partnership, two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with
the intention of dividing the profit among
themselves.

4. • Each owner is called a partner.

5. Characteristics of a Partnership
• partnership can own and can sue or
be sued
ASSOCIATION
OF INDIVIDUALS
• each partner acts on behalf of the
partnership when engaging in
partnership business
MUTUAL
AGENCY
• may be ended voluntarily at any
time through the acceptance of a
new partner or the withdrawal of a
partner.
LIMITED LIFE

6. Characteristics of a Partnership
• each partner is responsible for
all the debts of the
partnership
UNLIMITED
LIABILITY
• If the partnership is dissolved, each
partner has a claim on total assets
equal to the balance in his or her
respective capital account.
CO-
OWNERSHIP
OF PROPERTY

7. Advantages of Partnerships
Ease of formation
Allows pooling of
financial resources
Allows pooling of
skills/expertise
Less government
control than
corporations

8. Disadvantages of Partnerships
Limited life
Unlimited
legal and
financial
liability
Mutual
Agency

9. Types of Partners
As to Liability:
General Partner
– liable to the extent of his separate property
after partnership assets are exhausted
Limited Partner
- liable only to the extent of his capital
contributions

10. Types of Partners
As to Investment in the Partnership:
• Contributes money or
property
Capitalist Partner
• Contributes knowledge or
personal service
Industrial Partner
• Contributes money or
property as well as industry
Capitalist-
Industrial Partner

11. Accounting For Partnerships
Basic Considerations and Formation

12. The books of the partnership are opened with
entries reflecting the net contributions of the
partners of the firm.

13. Partners may invest cash or non-cash assets.
When partners invest non-cash assets, they
are to be recorded at values agreed upon by
the partners.

14. In the absence of any agreement, the
contributions will be recognized at their fair
market values at the date of transfer to the
partnership.

15. - debit the assets contributed, and to
credit the liabilities assumed and the capital
account of each partner.
Individuals with no existing business form a
partnership

16. Individuals with no existing business form a partnership
On July 1, 2018, Nilo Burgos and Helen Ruiz agreed to form a
partnership. The partnership agreement specified that Burgos
is to invest cash of P700,000 and Ruiz is to contribute land
with a fair market value of P1,300,000 with P300,000
mortgage to be assumed by the partnership.
Entry:
Cash P700,000
Land 1,300,000
Mortgage Payable P 300,000
Nilo Burgos, Capital 700,000
Helen Ruiz, Capital 1,000,000
To record the initial investments of Burgos and Ruiz

17. Burgos and Ruiz
Statement of Financial Position
As of July 1, 2018
Assets
Cash P 700,000
Land 1,300,000
Total Assets P 2,000,000
Liabilities and Owner's Equity
Mortgage Payable P 300,000
Nilo Burgos, Capital 700,000
Helenita Ruiz, Capital 1,000,000
Total Liabilities and Owner's Equity P 2,000,000